Hamster Hub Ltd (Article Sample)

Introduction Hamster Hub Ltd, also abbreviated as HHL is a fictional company that deals in the manufacturing of electric bicycles and other related accessories. Some of the products that the firm designs, manufactures, and sell are the hybrid bikes, road and mountain bikes. Further, it is also important to note that the company has built its brand name over the years through its aggressive marketing approaches, continuous innovations, fair pricing policy and the adoption of the latest technological advancements in the industry. Additionally, the company also draws its prosperity from the sound accounting principles in has adopted in the past. However, the business environment in the electric or rather e-bike industry has been experiencing drastic changes in the recent past. Due to this, the traditional costing and budgeting methods that have been a key factor towards the growth of the company are no longer feasible and sustainable. The current industry is driven by impeccable customer service, intrigued innovation and the provision of quality products and services to the clients. As the newly recruited senior management accountant, I have been tasked with the new finance director, Maria Shipley to consider the different costing methods that would be more applicable to the changing market needs. Therefore, this paper gives alternative costing approaches and shades light on the most feasible responsibility centers that can be adopted by the management of the Hamster Hub Limited (HHL) towards leading the company back to its initial profitability and innovative haven. After that, the paper will give the most viable option that the firm should employ to remain both financially and market-wise relevant to the ever-changing electric bike (e-bike) industry. Alternatives to the traditional costing method Costing is a system that enables the managers of any firm that deals in the production of goods and services to determine the product cost that is related to the respective revenues it generates. It is important to note that the traditional accounting method is a system that assigns different manufacturing overheads with relevance to the volume of cost drivers. The cost drivers can be defined as those factors that cause the occurrence of the expenses such as direct material, machine and direct labor hours amongst others. Further, the costing methods always help the business organizations to determine the value of a specific firm's stock and the measure of the profitability margins. Further, it's also useful also used to gauge the performance of different departments of an organization, assist in making pricing decisions and the decisions that relate to as to whether the firm should continue to produce or terminate the production process. Discussed below are some of the alternatives to the traditional costing method that the management of Hamster Hub Limited can consider adopting to rejuvenate the profitability of the business and increase its relevance in the competitive e-bike industry. Just-in-time (JIT) costing The just-in-time costing that is abbreviated as JIT is a costing technique that was firstly introduced by the Toyota Corporation in Japan and many companies have since adopted it all over the world. This costing technique is also referred to as zero inventory, Kanban or stockless production. It is significant to note that this costing method is related to lean production technique that was introduced within Japan in the early 20th century to either reduce or eliminate wastage in the production process. Based on this, the just-in-time costing is also determined to reduce the cost of production by reducing wastage. This principle categories wastage as anything that is above the minimum amount of materials, workers and equipment that are sufficient for the production of goods and services. For instance, the just-in-time costing technique can be applied by the firm in reducing the costs of production by only contracting the workers in different chains of production as the need for their services arises in the firm. Additionally, the call to duty as the need arises is also likely to help the organization to explore the possibility of employees working in different shifts so as to reduce congestion in the company. This is also likely to improve the quality of the products produced because a supervisor will have a manageable group of employees. As a result of increased supervision and a more coordinated workforce, the organization is likely to enhance the value of each and every element of production injected into the business. The company can apply this costing method by producing the needed material just-in-time or rather as the demand arises so as to reduce the cost of warehousing. Traditionally, the company has been producing the electric bikes in large volumes based on the traditional costs. This often led to increased costs of doing business since the firm had to incur additional costs in storing the products as they source for the market in Europe and The United States of America. Throughput costing technique The throughput costing is a costing technique that aims at making the best use of the scarce resources, also referred to as bottlenecks, in a production process. In other words, the throughput costing can be defined as the difference between sales revenue and the direct material costs of any particular product. This costing technique always helps business organizations in maximizing their share of profits even as they continue to cut down on the firms’ operating expenses. The management accountants of the firm should always work towards determining the factors or rather the constraints that reduce the throughput value. Identifying these factors will enable the firms to cut down on their expenses with the exact amount of money that were initially allocated to factors that were not adding value to the production process of the firm. Moreover, the management of the firm can increase the throughput costing by improving the quality of the bottlenecks or rather constraints. Increasing the quality of the bottlenecks would lead to a general increase in the quality of the products manufactured by a firm since these bottlenecks form part of the final products. The management accountants should consider increasing the value of the bottlenecks in both the short-term and long-term. Activity based costing This as the second costing technique that the management of the Hamster Hub Limited can adopt. The activity based costing is a costing technique that identifies the all the relevant activities in the production process and after that allocates costs to them. This is a relevant accounting technique since it always allocates only the relevant costs that are sufficient to finance the activity at hand. Unlike the traditional costing technique whereby the costs were likely to change over the periods of time due to the changes in economic factors such as inflation and foreign exchange rates and ends up not to be factored in the budgeting process, the company members is able to mark the current costs of each activity based on the current market rates. Further, the activity based accounting is likely to absorb the overhead costs more accurately as compared to the traditional costing technique that generalized costs. The absorption of the specific overhead costs is useful in making the investment decisions for the management of the firm is capable of monitoring each and every cost drivers. Based on this information, the management of the firm will be able to review the cost drivers either upwards of downwards based on demand in the electric bikes' market. Recommendation Based on the above three discussed costing methods, activity based costing is the best since it allocates costs to all the different cost drivers based on the prevailing market rates. It is also the timely cost of costing, unlike the just-in-time costing whereby a delay in the supply of any factor of production such as raw materials can stop the entire production process of a firm. The three traditional budgeting alternatives including the ‘beyond budgeting’ approach The traditional budgeting is always characterized by top-down implementation process, tight command, and controls with more authority tied to the top level management. This budgeting technique has different shortcomings that can be addressed with the beyond budgeting approach. Unlike the traditional budgeting, the beyond budgeting approach is always centered on empowering and coaching, decentralizing authority and working on flexible or rather relative targets. This section of the essay addresses the alternatives of the traditional budgeting based on three core differences. These are management style, the seat of authority and performance measurement. The management style The traditional budgeting approach is based on the command and control. This approach always believes that the executives of any firm are more qualified or rather they are better placed to translate the bigger organizational goals into consumable short-term strategic plans, business initiatives, operational goals and relevant initiatives for different business units and class of employees. This management technique is not concerned with having a lasting relationship between the top level managers and the low-level staff in an organization. The executives are always concerned with controls and commands that ensure the short-term success of a firm rather than the complete growth of the firm. Therefore, the management of the firm always works within the provisions of the company's budget without considering the allowance for future economic changes. On the other hand, the beyond budgeting technique always adopt the management principle of empowering and coaching. This budgeting technique is not confined to the provisions of the traditional budgeting of ...