Table of Contents
1.1 Importance of costs in the pricing strategy of an organization.
1.2 Design a costing system used by the corporate organizations to attain a better impact on finance.
1.3 Propose improvement to the costing and pricing systems used by an organization.
2.1 Explanation of sources of finances.
Recommendation for the WEB Co.
2.2 Explanation of why WEB might decide to raise capital in the form of convertible debt issues rather than straight equity or debt to fiancé the project mentioned in the question.
2.3 Recommendation of other sources of finances that WEB CO can use to finance proposed projects.
3.1 How to decide appropriate budgetary targets to achieve short-term objectives to increase profit in the organization?.
3.2 Describe the procedures to participate in the creation of a master budget
3.3 Comparison between actual expenditure and income in the master budget
4.4 Evaluation of budgetary monitoring process of an organization.
4.1 Cost Reduction processes.
Step 1: Cost Identification.
Step 2: Cost reduction through improvement of the process.
Step 3: Cost reduction through procurement strategies.
An example of end result of the cost reduction process.
4.2 Activity Based Costing.
5.1 Understanding of ‘NPV’ as appraisal methods.
5.2 Limitation of ‘NPV’.
5.3 Why NPV is more popular than the Pay-back period, ARR and IRR?.
5.4 Understanding of the Pay-Back Period with its pros and cons.
6.1 Analyze the financial performance of the company.
6.2 Analyze the financial performance of the company.
Managing financial principles and techniques is an important factor in the way a business run and success (Attril and McLaney, 2011). This report conducts a study on different financial issues. The first section explains the importance of cost in the pricing strategy of an organization with the design of a costing system and proposed implementation. The second part discloses several financial sources of a particular organization namely WEB CO and suggests the suitable source of finances. The third part of the report describes several budgetary issues mainly master budgets of an organization. In section four, the process of cost reduction has been discussed. It also includes the issues of activity-based costing with its evaluation. The fifth section analysis and evaluate different methods of investment appraisals including Net Present Value, Payback Period, ARR and IRR. The sixth part of the report calculates several ratios of an organization to evaluate the business’s position comparing of two years ratios result.
1.1 Importance of costs in the pricing strategy of an organization
Costs in pricing strategy include full-cost and variable cost where full-cost is both direct variable and indirect fixed costs and variable cost is only direct variable costs. Full-cost significantly impact marking up pricing, rate-of-return pricing and break-even pricing. On the other hand, variable cost effect on minimum selling price and the demand for products to stimulate and shift.
In addition, Cost is one of the significant parts of pricing because it can decide profit margin which is added to create product price. Consequently, cost-cutting comes to big companies to improve profit margin. On the other hand, when cost increase bade it affects the product’s price to increase. However, organizations try to keep products price constant in case of minor adjustment in cost (Buys and Green, 2006)
1.2 Design a costing system used by the corporate organization to attain a better impact on finance
A costing system is designed to monitor and control the incurred cost of a corporate organization. It is consists of a set of forms, processes, control as well as reports which are designed to report an aggregate to management regarding costs, revenues, and profit. It can be based on any part of the company such as customers, departments, facilities, processes, products and services, R & D, etc ( Lanen et al, 2011).
Report created by a costing system should include: a) budget vs. actual report or cost incurred; b) profitability report for consumers, stores, sale regions and products; c) cost trend report showing expenses incurred monthly basis. The information comes in the report of costing system should be used for: a) fine-tuning operation to make a higher profit; b) matching actual costs with the budgeted cost for controlling purpose; d) deciding the of costs cut during the business downturn; d) making tactical and strategic plans for future operations ( Lanen et al, 2011).
There two main costing systems: jobs costing system and process costing system. Job costing system includes labor, materials and overhead cost for individual job or section. It is best for unique products. Process costing system includes labor, material and overhead cost for the entire production process. It is the best for a large number of products ( Lanen et al, 2011).
In the case of a corporate organization, combine of both jobs costing systems and process costing systems will be sued because they are large organizations with huge jobs and products.
1.3 Propose improvement to the costing and pricing systems used by an organization
An organization like Tesco Plc can improve its costing and pricing systems using an intermediate pricing strategy which includes both skimming pricing and penetration pricing strategy. In skimming pricing, Tesco will initially set very high prices and will reduce over time, wherein penetration pricing the initial setting will below to enter into the market. Tesco has to use a skimming pricing strategy when production and market costs are unknown, demand is price inelastic and price-market segments are different. On the other hand, Tesco has to use a penetration pricing strategy when there is the probability of saving large production and marketing costs, no separate price-market segments and demand is price elastic………..