need project report on all

Padhuka's - Students' Handbook on Strategic Cost Management & Performance Evaluation - CA Final 10.3.3 Relevance of Other Costs Nature of Cost Variable Overheads Relevant Cost Irrelevant if already incurred. Relevant, only if such costs are to be incurred in future. Relevant, only under specific situations described in Question above. Irrelevant, as it is an apportionment of Historical Cost. However, fall in Asset Disposal Value due to delay in disposal, becomes relevant Irrelevant if already incurred or apportioned. Relevant if they are to be incurred specifically for any contract / work. Fixed Overheads Depreciation Other Department Costs Intra-Company Transfer Price Charges for services (Incremental Costs upto the point of transfer + Opportunity Costs) are relevant. 10.3.4 Pitfalls in Relevant Cost Analysis 1. All Variable costs are relevant: Variable costs already incurred in the past are historical and irrelevant. Even among future Variable Costs, those which will not differ under different alternatives are irrelevant. For example, a Company wishes to replace its manual operations with mechanization. If the same material is used, the Direct Material Cost, even if variable, will be irrelevant. 2. All Fixed Costs are Irrelevant: Fixed Costs are irrelevant when they are general in nature and do not differ by reference to the alteratives under evaluation. There are situations where Fixed Costs become relevant. (See question above.] 4. Concept Illustrations on Cost Classification Note: Principles for answering the questions herein are discussed above. Concept Illustration: Buildico, a Company that builds houses presents the following facts relating to a certain Housing Contract that it wishes to undertake- M 14 (1) The CEO's and Marketing Director's food and hotel expenses of 73,750 were incurred for a meeting with a prospective client. (2) 1,200 kgs of Raw Materials Z will be required for the house. Inventory of Z available is 550 kg. It was purchased at 580 per kg. It is used by Buildico in other projects. Its Current Market Price is 650 per kg. Its Resale Value is 350 per kg. (3) The House will require 90 hours of Engineer's time. The Engineers are paid a fixed monthly salary of 47,500 per Engineer who can work 150 hours a month. Spare time is not available now and an Engineer has to be hired for this house for one month. He cannot be used in any other project once he does this contract. (4) Buildico will use a special Earthquake-proof Foundation Material. This was developed by Buildico at a cost of 30,000 for some other project that had to be abandoned. If it does not use it in this project, it can use it in some other project and charge the Client 50,000 for it. A list of items is given below. You are required to name the type of cost and state whether it is relevant or not in calculating the cost of the given Housing Project: Relevant / Irrelevant Irrelevant Irrelevant Solution: S.No Item 1 Food and Hotel Expenses 3,750 2 (0) Material Z: 550 kg x 7 580/ kg (ii) Material Z: 550 kg * 650 per kg 3 (0) Engineer's Salary + 47,500 Engineer's Free Time Cost 60/150 x 47,500 4 (0) Design Cost * 30,000 Design Cost 50,000 Relevant Type of Cost Historical / Sunk (already incurred) Historical (already purchased) Out-of-Pocket / Incremental Specific / Discretionary / Avoidable Committed (anyhow to be incurred) Historical / Sunk (already incurred) Opportunity Cost (Loss of Revenue) Relevant Irrelevant Irrelevant Relevant 10.6 Performance Measurement It involves comparing the firm's products, services or activities against other best performing organisations, either internal or extemal to the firm. The objective is to find out how the product, service or activity can be improved and ensure that the improvements are implemented 42.5.2 Types Competitive Benchmarking: It involves the comparison of one's own products, processes and business results with that of competitors. Benchmarking Partners are drawn from the same industry. To protect confidentiality, it is common for Forms to undertake this type of benchmarking through associations of third parties. Strategic Benchmarking: It involves a systematic process by which a Firm seeks to improve its overall performance by examining the long-term strategies. It involves comparing high-level aspects such as developing new products and services core competencies, etc. It is similar to Process Benchmarking in nature but differs in its scope and depth. Global Benchmarking: It is a benchmarking through which distinction in international culture, business processes and trade practices across Firms are bridged, and their ramification for business process improvement are understood and Utilised. Globalisation and advances in information technology leads to use of this type of benchmarking. * Process Benchmarking: It involves the comparison of a Firm's critical business processes and operations against a best practice organisation that performs similar work or deliver similar services. Functional Benchmarking: This is used when Firm look to benchmark with Partners drawn from different business sectors or areas of activity, to find ways of improving similar functions or work processes. This sort of benchmarking 5. 6. can lead to innovation and dramatic improvements. Internal Benchmarking: It involves seeking Partners from within the same Firm, for example, from business units located in different areas. The main advantages are - (a) Easy access to sensitive data and information, (b) Availability of standardised data, and (c) Lesser requirement of time and resources. However, real innovation may be lacking. External Benchmarking: It involves seeking help of outside Firm that are known to be best in class. It provides opportunities of learning from those who are at leading edge. However, this type of benchmarking may take up more time and resource to ensure the comparability of data and information, the credibility of the findings and the development of sound recommendations. Benchmarking can also be categorised into - 2. Intra-Group Benchmarking: Here, the groups of Companies in the same industry agree that similar units within the co-operating Companies will pool & share data on their processes. The processes are benchmarked against each other at or near operational level. 'Improvement Task Forces' are established to identify and transfer best practice to all members of the group. Inter-Industry Benchmarking: In Inter-Industry Benchmarking, a non-competing business with similar process is identified and asked to participate in a benchmarking exercise. For example, a Publisher of Schoolbook may approach a Publisher of University Level Books to establish benchmarking relationship. 12.5.3 Stages The process of Benchmarking involves the following stages - Stage Description Planning, which involves - (a) Determination of Benchmarking Goal Statement, (b) Identification of best 1 performance, (c) Establishment of the Benchmarking or Process Improvement Team, and (d) Defining the relevant benchmarking measures. 2. Collection of Data and Information. 3 Analysis of the findings based on the data collected in Stage 2. 4 Formulation and implementation of recommendations. 5 Constant monitoring and reviewing. Stage 1: Planning (a) Determination of Benchmarking Goal Statement: This requires identification of areas to be benchmarked, which uses the following criteria 12.15 1. 2 12.5.4 Pre-requisites for successful Benchmarking Commitment: Senior Managers should support benchmarking fully and must be committed to continuous improvements. Clarity of Objectives: The objectives should be clearly defined at the preliminary stage. Benchmarking Teams have a dear picture of their Firm's performance before approaching others for comparisons. 3. Appropriate Scope: The scope of the work should be appropriate in the light of the objectives, resources, time available and the experience level of those involved. 4. Resources: Sufficient resources must be available to complete projects within the required time scale. 5. Skills: Benchmarking Teams should have appropriate skills and competencies. Communication: Stakeholders, and also Staff and their representatives, are to be kept informed of the reasons for 6. benchmarking 1. 12.5.5 Difficulties in implementation of Benchmarking Time consuming: Benchmarking is time consuming and at times difficult. It has significant requirement of staff time 2 Lack of Management support: Benchmarking implementation requires the direct involvement of all managers. The drive to be best in the industry or world cannot be delegated. Resistance from employees: It is likely that there may be resistance from employees. 4 Paper Goals: Companies can become pre occupied with the measures. The goal becomes not to improve process, but to match the best practices at any cost. 5. Copy-paste attitude: The key element in benchmarking is the adaptation of a best practice to tailor it to a Company's needs and culture. Without that step, a Company merely adopts another Company's process. This approach 3. leads to a failure of bench marking goals. 1. 12.5.6 Benchmarking Code of Conduct To contribute to efficient, effective, and ethical benchmarking, individuals agree for themselves and their organization to abide by the following principles for benchmarking with other organizations- Principle of Legality: Avoid discussions or actions that might lead to restraint of trade, market or customer allocation schemes, price fixing, dealing arrangements, bid rigging, bribery or mis-appropriation. Do not discuss costs with Competitors, if costs are an element of pricing. 2. Principles of Exchange: Be willing to provide the same level of information that you request, in any benchmarking exchange. 3. Principle of Confidentiality: Treat benchmarking interchange as something confidential to the individuals and organizations involved. Information obtained must not be communicated outside the partnering Firms without prior consent of participating Benchmarking Partners. A Firm's participation in a study should not be communicated externally without their permission. 4. Principle of Use: Use information obtained through benchmarking partnering only for the purpose of improvement of operations within the partnering companies themselves. External use or communication of a Benchmarking Partner's name with their data of observed practices requires permissions of that Partner. Do not, as a consultant of Client, extend one Company's benchmarking study findings to another without the first Company's permission. 5. Principle of First Party Contact: Initiate contacts, whenever possible, though a benchmarking contact designated by the Partner Company. Obtain mutual agreement with the contact on any hand off of communication or responsibility to other parties. 6. Principle of Third Party Contact: Obtain an individual's permission before providing their name in response to a contact request. 7. Principle of Preparation: Demonstrate commitment to the efficiency and effectiveness of the benchmarking process with adequate preparation at each process particularly, at initial partnering contact 12.17