To give perspective information on what the most profitable decision maybe, we have provided information on product costs using an ABC costing system. We have given a description of an ABC costing system as well as the justifications on which products for expanding. Also included is descriptions of methods used and other potential methods, qualitative or quantitative factors, and some additional information.
Descriptions & Justifications
An ABC costing system can help provide a business with crucial information like, identifying the cost of an individual product, contribute to reveal unnecessary costs and assist in determining products that are unprofitable. While this is, great information is most be noted that it should not be the only information that decides whether to continue a product line. ABC costing data can easily be misinterpreted and may not show factor like products being bought because of other purchase. An example is that our client told to use that most sales of sod are to a contractor that use on the whole subdivision at once and that trees are bought long with the lawn to increase the look of the landscape. ABC cost will only show what is profitable and will not reflect the ability to sell more of a certain product. Another concern may be the complexity of maintaining an ABC costing system. For example, changes in production cost incorrectly adjusted, may skew the information and make a product look more profitable than what it is.
From the analysis of the manufacturing process by comparing Traditional costing and ABC costing, it is evident that when the number of sales and the cost of product per unit on both accounts is constant, then ABC clearly depicts a little return per unit of Sod. The total estimated amount of labor hours for both plants is 15793.259 where sod production contributes the majority, 14011.659 hours while giving returns of $ 0.36 per unit. While considering ABC approach, the rate of returns per unit of trees is 1.72 whereas that of sod is 0.35 indicating that the long-term production of sod compared to its profitability is low per unit. Mr. Beridon should, therefore, consider cutting on sod production for the sake of tree planting in the long run which translates to better profit margins. Also, due to the expanding market in Houston and the fact that he has always sold all his produce, tree planting in place of sod would be ideal.
From the analysis for Mr. Beridon’s farm, the numbers show that even though sod is the best choice to be discontinued for saving money. The tree portion’s numbers are a little high in the direct labor, $91,612.98, and the overhead for the manufacturing, $100,431.90, and the sales of the trees are cheap $115,714.92. The sod portion of the farm in these areas is lower and higher in the sales. More square feet of sod, 1,556,851, are sold than the number of trees sold, 8,908. Mr. Beridon’s farm could benefit from using the tree area to increase the sod portion of the farm which would help increase the sales of sod which are greater than the tree sales.
Analysis, Factors, & Additional Information
There are many other studies that Mr. Beridon could consider such as qualitative and quantitative or Mr. Beridon could find a differential analysis to figure out what is the best for Jeemp Farms. The bottom line it is Mr. Beridon’s business, however, if he is planning on making it successful by considering cutting down cost on sod. Currently, there are several alternatives that Mr. Beridon could go with keeping the business operating same, lowering productivity of sod and increasing trees productivities, or reducing trees productive and razing sod productivities. The differential analysis involves four tears, compute all costs associated with each alternative to the sod and trees, disregard the sink costs, disregard costs that remain consistent among the alternative and select the option offering the best cost to benefit ratio. The differential cost would define a difference in cost between three options. Differential revenue would identify alternative revenue between three options.
When managers are faced with business decisions, they must o account both qualitative and quantitative factors. Factors from these analyses can be very useful when making strategic moves to improve any business from an operational standpoint. A qualitative analysis simply requires one to look at the immaterial things while quantitative analysis requires one to look at actual numbers. These various factors about the organization are not exactly driven by numbers, but they are just as important as crunching the numbers. Therefore, analyzing the different business calculation are essential when analyzing virtually any given establishment that is being evaluated. A qualitative analysis is a subjective analysis and ultimately depends on the company being examined as well as the reason for the analysis. The understanding of the efficiency of management is significant as to their ability to run the company in an effective manner. The purchaser and seller interactions are also vital, although it’s hard to quantify an organization’s relationship with its suppliers. When conducting qualitative analyses, professional judgment is a necessity regarding what’s pertinent and what should be studied. While analyzing Mr. Beridon’s company, Jeemp Farms, several factors must be considered from a qualitative and a quantitative perspective that’s relevant to the enterprise. These analyses will assist Mr. Beridon to make the decision as to whether to use ABC or whether to cut sectors. He should consider qualitative factors like his company’s reputation, the strength of his brand and as well as his employees’ morale. He should also analyze quantifiable data such as his business sales figures and the profitability and return on his investments. Other quantitative factors that Mr. Beridon should observe consist of calculations such as obligations, equity, net income, and net assets.
The traditional and ABC costing methods provide valuable information for the analysis as they provide a glimpse into a company’s financial activity and the cost it takes to produce a product. The quantitative and qualitative factors are also important pieces for the analysis. As the Jeemp Farms depends on sales from local business, it is good to look at the local economy. Sod is sold mainly to home builders who also purchase trees occasionally. Keeping track of the new home demand and construction will also assist in determining how well sod will sell. While some trees are acquired by the developers, most of the sales come from orchards and individuals. It would be good to stay informed on items that affect the orchards demand such as climate, produce sales or diseases that might destroy the crops. Jeemp Farms must also consider how much effort it takes to create both the trees and sod. Trees would require better equipment to reduce the planting time and irrigation, whereas sod would not need the new equipment and irrigating it easier as runoff from the creek is used.
In conclusion to help give perspective information on what the most profitable decision maybe, we have provided information about product costs using an ABC costing system. We have given a description of an ABC costing system as well as the justifications on which products for expanding. Also included were descriptions of methods used and other potential methods, qualitative or quantitative factors, and some additional information.
Please provide me with a minimum of 150 words for each of this questions. Thank you
Recommend whether the company should discontinue the sod portion of the business and what outside factors might need to be considered prior to doing so.
List any non-financial factors that should be considered in decisions the company makes. –