Report on Crappy Ceramics Ltd

            The Crappy Ceramic Ltd is a ceramics manufacturing company that operates in Birmingham. The company purchases raw material from the suppliers for the purpose of manufacturing the ceramics. The main products of the company are the ceramic bathroom and kitchen products. The supply chain of the company is then liable to deliver the manufactured products in the warehouses and distribute in the targeted markets of the company. In this report, current logistic functions of the company are analyzed in accordance with the financial resources spent on these logistic functions and costs allocated in ensuring all these functions. the report will take the analysis of the cost and prices to elaborate that how the company can reduce the cost and prices of the logistic functions.

Key management Accounting Costing Methods

        Management accounting costing methods enable the company to calculate the cost for their operations. There are two important methods commonly used in the accounts for costing purpose as job costing method and ABC costing method. Thorough analysis and academic research indicate that job costing method is commonly being in use for the allocation all costs incurred during manufacturing and delivering products (Ross, Westerfield and Jordan 2008). While on the other hand, ABC costing method abbreviated form of Activity-based costing method allocate the cost in accordance with the activities done for delivering and manufacturing the product.

        In fact, it is clear that activity it-self is not a cost but each activity done for the delivery or manufacturing of the product causes to increase or decrease the total cost of production or delivery for the products. For instance in delivering the products from manufacturing plant to the warehouse the transporting in a complete activity that requires cost (known as transportation expense or cost). In the activity based costing system company will identify the indirect and direct costs incurred in each activity and then allocate it in total cost.

        In accordance with the analysis of both accounting costing methods we can conclude that Crappy Ceramics Ltd can focus on the costing method of Activity based costing method for the distribution operations as the method is highly efficient and appropriate for the operations of the company (Ross, Westerfield and Jordan 2008). The main emphasis of this costing method is on the identification of costs and time cost frame, both are really important in distribution operations and logistical activities. In this costing, method company can allocate three types of costs direct cost, indirect cost, and overhead costs. For instance regarding the distribution operations of the company direct cost is transportation cost for shifting the Artic load of bathroom future form manufacturing plant to the warehouses. As an activity based costing method is capable to provide all information about the incurred cost and allocate the cost in the operations, therefore, we can use this method in the Crappy Ceramics Ltd.

Investment Appraisal Methods of Crappy Ceramics Ltd

        Investment appraisal methods provide information about the investment opportunities after completely evaluating and assessing each investment opportunity. Inflation should be taken into consideration while taking a decision toward investment in order to maximize the benefits and advantages. However ignoring the factor of inflation sometimes also causes to generate a loss for the business organization.

        There are several methods available for appraising the investment opportunities as Accounting Rate of Return (ARR), Payback Period, Internal Rate of Return (IRR) and Net Present Value (NPV). In accordance with the analysis of all these methods, it is concluded that two major investment appraisal methods that consider the inflation effects are Net Present Value (NPV) and Internal Rate of Return (IRR) (Quiry, et al. 2011). Net present value is a discounted cash flow technique that has several advantages and disadvantages if we use it for investment appraisal. For instance, it considers the inflation effects and the time value of money (that is a major advantage of this method in comparison to the other methods) but NPV is not capable to consider the timing of cash flows and profits generated from the investment.

        Moreover, NPV also cannot provide a clear understanding of the appropriate cost of capital. However, on the other hand, internal rate of return IRR method provides information about the inflation and time value of money but fails to provide considerations about the risk factor and other uncertainties (knowledgegrab.com 2018). Considering advantages and disadvantages of both methods findings can be concluded as NPV is relatively better and simple approach for Crappy Ceramics Ltd to evaluate and appraise the investment opportunities before taking the decision of investment.

Marginal and absorption costing of Crappy Ceramics Ltd

        Marginal and absorption costing are two different options available to the company that can be used to purchase an additional delivery vehicle. Marginal costing basically consists of contribution and variable cost. In this costing system company have to consider the variable cost of the product as the actual cost of the product. While in this costing, the company will include the fixed cost as the constant contribution for a specific period of time. On the other hand, absorption costing is a proper costing method that builds up the cost of the product by adding the direct cost and overhead proportion (Quiry, et al. 2011).

        Thus, in short, the main difference between the marginal and absorption costing is that marginal costing values inventory on the basis of the total variable production cost of a single unit and absorption costing values inventory on the basis of the all productions costs of a single product unit. In accordance with this difference, it can be suggested that Crappy Ceramics Ltd should use absorption costing rather than marginal costing as absorption costing is also considering overhead and indirect costs incurred in purchasing the asset or inventory (Ross, Westerfield and Jordan 2008). Therefore by using this approach, we can get a better estimation of the total cost incurred in purchasing the vehicle.

Reducing Price by Changing Costing and Pricing Assumptions

        There are a number of ways available that can be used to reduce the price by making changes in the costing and pricing assumptions. If the targeted markup is 58% then the company need to make big changes to reduce the prices and meet the targeted limit set for the prices (Quiry, et al. 2011). changing in the costing systems switching from the marginal costing to the absorption costing or job costing to the activity based costing we can make huge changes in the calculated price. The costing systems that do not support the overhead and indirect costs usually present greater profit margin because of the decrease in the cost as compared to the other costing systems that are giving importance to the overhead and indirect costs in allocating the total cost.

        Changes in the depreciation amortization methods is also a great way to bring changes in the price. While prices can be permanently changed and reduced through identifying the over processing and extra cost incurred in the production by the use of activity based costing method and eradicating that activities and over-processes (Ross, Westerfield and Jordan 2008). Bulk production and distribution can also reduce the effects of fixed cost. Thus through reducing the fixed cost per unit, we can generate financial leverage for the company. Somehow, the decrease in the prices and cost of the activities and product is not a big deal if management is capable to efficiently identify and control the factors that are causing to increase the cost.

Justification of the Concepts for Crappy Ceramics

        The costing, pricing, and investment concepts can provide a clear picture of the overall financial performance of the company in the fiscal year and in the historical perspective. For instance, we can evaluate the financial position of the companies through understanding their cost of production and profit margins if we can going to invest in that company through the use of these costing system (knowledgegrab.com 2018). Regardless of this, we can also evaluate the current financial condition and efficiency of the Crappy Ceramics Company by evaluating their costs allocated for their operations. In fact, the cost is the main thing that describes that how efficiently and how effectively a company is using its resources and running its operations to deliver output in the market. If the cost of production and cost of operations as distribution cost or cost of delivering the products in the market or warehouse are greater than the cost incurred by the competitors and other companies working in the same field then we can say that company is not showing better financial performance.

        While there are other accounting tools also that can be used to measure the financial performance of the company. Ratio analysis, horizontal analysis, and vertical analysis also help out in measuring the financial performance of the companies in the market and in regards to its operations. Even financial statements of the companies are clear indicators to present the financial condition of the company in the current year and comparatively in the previous year.

        Anyhow, considering all the available information about the financial performance of the company we can conclude that company should not involve any third party in their logistic functions but in fact, they should try their best to utilize their financial resources and logistic functions (Ross, Westerfield and Jordan 2008). However, some changes are also required in the functions of the company that should be made by the company to reduce their cost of operations and to enhances their profit margin. For instance, the company needs to maintain the inventory handling process. Inventory produced more than the requirements or demand of the market and stored in the warehouses causes to increase the inventory cost and expense. Inventory store in warehouses will increase the expense by increases inventory handling cost of the company. Therefore there is a need to maintain inventory level, use optimal approaches and efficient working capital approaches to maintain cost and prices.

Conclusion on  Crappy Ceramics Ltd

        Crappy Ceramics Ltd as ceramics manufacturing company is facing issue related to the increase in their cost of operations and logistic functions. Analysis of the costing methods concludes that activity-based costing method can be used in the company in order to maintain their required cost. Price calculated for the transportation indicates that the company needs to have at least the markup of 58%. Cost and prices of the transportation and operations can be reduced by making changes in the costing methods and through improving the inventory handling systems.

References of Crappy Ceramics Ltd

knowledgegrab.com. 2018. Investment Appraisal. Accessed 12 01, 2018. http://knowledgegrab.com/learners-zone/study-support/decision-making-financial-management/investment-decision/appraisals-16/.

Quiry, Pascal, Yann Le Fur, Antonio Salvi, Maurizio Dallocchio, and Pierre Vernimmen. 2011. Corporate Finance: Theory and Practice. John Wiley & Sons. Accessed 12 02, 2018.

Ross, Stephen A., Randolph Westerfield, and Bradford D. Jordan. 2008. Fundamentals of Corporate Finance. Tata McGraw-Hill Education. Accessed 12 02, 2018.