Management Decision Making (MDM) Assignment Sample
WRITTEN ASSESSMENT – MDM – INDIVIDUAL PIECE OF WORK
1. Introduction
This study is going to suggest the UKM’s financial condition is affected by the Covid-19 pandemic. In this regard, it is being referred to that this study is going to critically evaluate the Situation and Decision that has been taken by the company to recover the financial condition. This study also is going to highlight the comparison between the production cost and manufacturing cost. On the other hand, this study is going to refer to the concept of the cost drivers and applicability of those. Lastly, this study has been discussed the competitive company’s pricing strategy and recommendation to improve the condition of the UKM.
2. Critical evaluation of the impact of the Covid-19 pandemic in the planning of 2020
Senior management explains that companies are being faced with issues with financial estimation. In this aspect, the senior manager reviewed the budget and provided the report for 2020. Due to the sudden attack of the pandemic, new business units faced processing issues, reduction of the manufacturing labour, reduction of the profit margin, and not the utilization of existing production. The company is being decided to take over the marketing department product pricing of SPx512 and SPx256. On the other hand, it is being evaluated that this decision might help to regenerate the profitable condition in 2022 and 2023. It is also helping to resolve the new business processes issues (Brown et al. 2020). Due to this decision the company can stop reducing the production cost of SPx512 and SPx256. It is possible due to this decision that without reducing the production cost increasing the profitable condition in future (Case study).
3. Reason for cost reduction
The company selected the competitive processing advantages of the product SPx512 at 850 pounds. The process selection is being covered after analysing the industry price, performance comparison. In the ABS system, it is being approved that the establishment of the target pricing can affect the trader price of the product (Rosenzweig et al. 2020). As per the budgeted amount of the entire segment it is being emphasized that the company is being able to generate a profit of 4.9 million pounds and 1.9 million pounds in 2020 and 2021. It is being seen that the entire profit has been reduced in the year 2021 and the reason for this reduction is the market condition, customer base, and deductive growth of the market. In order to increase the customer base, the company decided to reduce its price value by 227 pounds.
It is explored that the spending is being decreased due to decreasing the price value of the company. In the New industrial model, it is been expected that the initial price reduction occurred due to a certain change in the market condition (Moreira et al. 2018). It is suggested the continuation of price deduction of the product up to 2023. It is provided that the company provides offer the price of 637.50 in 2022 and 2023 it will be 425.00 pounds which indicates that spending decreased. The new industrial costing approach indicates that, in order to improve the creating situation of the company, it is being required to reduce the customer of the offered product.
4. Impact of the utilization of the product costing and manufacturing costing
Product costing defines the methods of associating the marginal costing and accounting of the company. The product costing is affecting the corporate performance of the cost accounting measurement. As per the view of Gisario et al. (2019), these cost accounting measurements can affect the operational benefits and determine the direct material and labour costing. Production costing includes building reigned advertising budget business equipment and other miscellaneous expenses that are related to the production. Cost of production of each item is being inserted due to increasing rate of the production and use to this are being affected the company’s revenue. Increasing production is increasing the value of the revenue. Hence, if the production cost is being increased and fixed cost remains the same it is expected that the profitability value is also being increased and the company achieved a profitable situation. However, the reduced price of the fixed cost is also being priced into the profit margin situation (Abdulhameed et al. 2019). Hence, it is being expected that if the company, increased its costs of production, it has enhanced the value of the revenue and there has the scope of achieving the profit margin commodity.
Manufacturing costing consisted of three items of the cost, such as Material labour and overhead. As per the view of Chang et al. (2018), the manufacturing costing method is being used in the preparation of the production estimation of the costing processes methods. Manufacturing costing is used for the direct expenses and calculation of the costing of each item that is required in the business. Manufacturing costing is an important part of designing successful manufacturing parts in production. The designing of the manufacturing costs is being effective in ensuring the costing designing by implying models related to the manufacturing costing. Manufacturing costing consists of the entire measurement of direct material inventory, working progress, and finished goods. However, manufacturing costing provides the final result of a product at the end of the production.
The relation between manufacturing costing and production costing requires the before production costing and after production costing. As per the view of Jasim et al. (2020), manufacturing costing is the costing of the ongoing production process and production costing results on the basis of the final report of the manufacturing. In this company, it is being suggested that the company might utilize the production costing as it is being the best approach for controlling the cost of the product and increasing the profitable condition. As per the explanation manufacturing costing could not be controlled by the costing of the production. However, the company utilizes the production posting for improving the current situation of the pandemic effect in the profitable condition.
5. Explanation on drivers of the manufacturing and production cost
Activity-based drivers
Activity cost drivers influence the cost of the labour of the variable costing and fixed cost of the company. In this aspect, the branching condition is being managerial accounting allocates the indirect and direct costing. As per the view of Vormittag et al. (2018), activity-based drivers elements are causing the costing which has been increasing and decreasing the actual costing of the company. In this regrades, the cost drivers are being helped to calculate the elements of the costing and these elements are being worked as a causal factor in the costing management. Activity-based cost drivers are being allocated and work with the indirect costing of the company. In this regard, here the activity-based costs are assembly cost, test cost, packaging cost. These costs are referred the
volume-based drivers
Volume-based drivers are those areas related to the costing and production of the company. Production volume and sale volume are the two volume-based costing drivers which have affected the organizational work of the company. Production volume is constants the direct labour hour unit produced and others expenses that are related to the costing. Volume-based contriver has increased the relation among the output and required overhead capacity. Volume-based drivers help in measuring the production-related cost and level of cost. Volume-based drivers affected the direct cost of the production and it has been assigned with the overhead costing. Volume waste cost drivers are used to increase the product diversity and it has been designed to use the unique manufacturing product with different operating (Kukreja et al. 2021). In this aspect, volume-based costing is the departmental cost driver which ignores the different operations of the costing in a company. Volume-based cost drivers provide the department cost and determine the appropriate proportion of the production at every production level. The company has volume-based cost receivers which explains that the company has 22464 annual wafer production levels of 1866 pounds. On the other hand, the company has 339 PGA packaging estimations of 50 pounds for each product.
Structural drivers
Structural cost drivers determine the economic structure of the company by considering the other business activity. It is the main cost driver which is able to control all the other drivers. Controlling the economic cost drivers works as an entire economical condition of the company. As per the view of Liu (2021), it derives from the company’s estimated and accountable financial condition of the company. It includes all the technological growth, product strategy, pricing policies of the company. The economic structure is underlying with the scale of earnings of the company and unit of production. The economic structure is the structural methods and scopes which can be derived from the existing capacity of earning and resulted with the product manufacturing. The controlled structure of the economic condition might have been increased the scope of earning the profit condition of the company. It understands the condition of the costing and controls the activities among customers, products, resources of the costs of production. It consists of the cost allocation concept within the organization. In this company, structural drivers are in between q1 to q3 of 2022, the price is 250 pounds and costing is 62.50 pounds. In this regard, in between Q4 to Q2 of the year 2022-23, the price will be 187.50 and the cost will be 62.50. Lastly, in between Q3 to Q 4 of 2023, it will be 125-pound costs of 51.02 pounds. As per the structural costing drivers, it will be assumed that the profit condition and margin are being reduced with the reduction of the costing amount of the product.
Executional drivers
Executional drivers are related to the Executional business activities and it helps set to understand the related activities. These cost drivers are motivated by the nature of the company’s business operations. In this respect, these expectational drivers are being helped in determining the daily cost of the company in terms of designing the products. Execution cost drivers are being used for the quality management activity and product design of the company. It consists of the utilization of the employees, manufacturing designing, prevention of quality services of the company. In this company, it has a 4891225 pounds operating profit in 2020, whereas, in 2021, it was 1891225 pounds. As per the explanation of the executional costs drivers if the company can maintain the other sources of the manufacturing it is able to increase the amount of its operating profit in 2021.
6. Reduction of practical direct wafer fabrication
As per the ABC costing planning of the explained the new business, Simon smith has prepared structural details of the SPX512 product. The activity-based costing provides the information of the direct wafer fabrication costing of the company. In this aspect, it’s been referred to that the company selects the 38% spending as per the other details of cost. If the percentage of the direct wafer fabrication is being reduced and the actual spending is going to be reduced at the end of the financial quarter of 2021. In this regard, the current direct wafer fabrication is being 6739200 pounds with the effect of 38% spending. The actual spending required for the 22464 is the amount production of 1866 pounds each production. Based on that the required direct wafer spending is being 25474176 pounds with the desired fabrication of 41917824 pounds. It is being assumed that if the company reduced the percentage of the required spending of the current fabrication, it is going to affect the decried level of the spending of the direct wafer fabrication of the company. If the percentage will be reduced to 34% the value of the required direct spending will be 16812956.16. Whereas, the desired value of the direct wafer fabrication will be 50579043.84.
| Reduction of Fabrication percentage | |||
| Manufacturing area | The amount for 38% | The amount for 34% | |
| Current fabrication | 67392000 | 67392000 | |
| Desired level of spending | 41917824 | 50579044 | |
| Required spending | 25474176 | 16812956 | |
| Percentage change | 66.00% | ||
Table 1: Reduction of Fabrication percentage
(Source: Created by learner)
7. Recommendation regarding further cost reduction
As per smith’s project plan, there are various areas for reducing the production cost of the company. The senior manager also believes that the necessary cost reductions are being referred for the education of profit margin condition. Development of the excessive cost structure also going to produce company profit increased condition (Daniels and Danner, 2020). There are various cost drivers which are being referred to reduce the effect of the economic condition. In this regard, there are required necessary development is required to control the costs of the production and reinforce the profitable condition of the company. Activity-based costing is being helped to guide the use of the cost drovers, preparation of the proper cost structure, and necessary economically improved conditions by using various strategies. In this respect, it is being referred to various aspects of the cost reduction process and it highlighted the current noncomplex value addition to the company. As per the project planning, the semiconductor manufacturing process is being used only the Fabrication process which has affected on the profitability situation of the company (Batrinca et al. 2018). It is expressed that the company can have a non-profit situation due to having the fabrication process. It is being suggested that canopy can implement the Probe process as it is being technological development manufacturing process. This process requires electrical performance whereas the fabrication process could not provide those benefits. On the other hand, the out of these fabrication process is costing 62.50 pounds for each production. However, the Probe process costing amounting 50.55 pounds. Hence, it is being referred that the Probe process is being reduced the company’s production costing and it has been going to affect the company’s profitable condition. On the other hand, the company might be using an assembly process, which has been going to provide the benefit of connection between aluminium wires and leads in the package. It is being helped to create an electrical condition by using the less costing of the other additional equipment are than wires and leads. Hence this process is going to affect the company’s cost of the process (Darko et al. 2018). In this aspect, the comparison between the assembly process, probe, and fabrication prices explain that the assembly process costing of 58.25 pounds whereas the probe is being less costly. Lastly, it is being suggested to the company to implement the Probe process to rescue the costing of the operational costing of the company and it is being a cost to increase the operating profit of the company.
8. Explain pricing advantages with UKM’s competitors
It is being expected that UKM has a competitor named top telecommuting plc, which is going to provide 33% wafer fabrication in the same market. The company has used the same process. In this regard, it is being explained that the company are being using a pricing strategy. Pricing strategy helps to the accountability of the company’s different pricing segments and ability to pay the labours and other expenses in a complex market condition (Ma et al. 2020). Pricing strategy helps to increase the competitive advantage in the target market. In the Increased level of competitive advantage, the company can use this pricing strategy to achieve the profitable condition from the same market. Various pricing strategies help companies to achieve a competitive advantage in a highly competitive market. Such as market penetration, premium pricing, economy pricing, Dynamic processing, price skimming, value-based pricing, and others. Out of those, price skimming is being the best pricing strategy that has been used by the competitive company of UKM.
| Reduction of percentage for a competitor company | |||
| Manufacturing area | The amount for 38% | The amount for 33% | |
| Current fabrication | 67392000 | 67392000 | |
| Desired level of spending | 41917824 | 50324302 | |
| Required spending | 25474176 | 17067698 | |
| Percentage change | 67.00% | ||
Table 2: Reduction of percentage for a competitor company
(Source: Created by learner)
Price skimming is the strategy that provides the initial price change with a lower rate of production cost. Skimming means the strategy to increase the customer segment with the referred prices that are going to offer the customers and maintain the customer’s benefit. The price skimming model helps to up rise the sales volume and helps to cover the research development cost. It is being and constructed pricing strategy that helps to improve any business bottom line condition and maintains a perfect balance between the sale and profitable condition. Price skimming strategy explains the higher price for the new business idea. This explains that the price of the product can be dropped accordingly, so the company should set the price higher in the 1st launch. Price skimming strategy has been helped to expect that this pricing strategy has increased the company’s product differentiation capacity. In this term, the company is using the Wafer fabrication, probe, and assemble process in its manufacturing process. With the help of this strategy, the company can create high-quality products with less production cost (Dong et al. 2018). Hence, it has the pricing strategy to achieve higher returns in this regard, it has been expected that the company has the high scope of achieving the higher profitable condition for the UKM. in this regard, it is been suggested that the company also apply the pricing skim and implement the multiple processes of the manufacturing process. Hence, this has been provided to the company to achieve the profitable condition like the competitive company.
9. Conclusion
The study is being referred to the critical issues being faced due to the Covid-19 pandemic situation. In this regard, various processes are being suggested to improve the project planning for that year. This study is going uprising the aspects of the highlighted areas of the improvement of that manufacturing product of the UKM company. On the other hand, this strategy has referred to the relationship between utilization of the product costing and manufacturing costing in brief. On the other hand, this study is being suggested as the best possible costing strategy. There are various cost drivers which have been different functionalities. In this aspect, this study has been going to refer to those cost drivers and improvisation of those in the product costing. On the other hand, this study has been refereeing the reduction percentage which has been affected on the desired value of the fabrication of the company. It is being implemented that due to the percentage reduction of the costs of manufacturing is being reduced. Whereas it has been enabled that the company is able to achieve the profitable condition.
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