Page 20 - Cost

Cost Competitiveness

over the years. Te budgeted sales for each requirements of the customers.
SBU is 12, 000 (in P1:P2:P3:P4: 1:1:1:1 Ratio)
Order received for sales during last fve years Operational Functions Perspectives:
are as in Year-1, it was 14,000 units, year-
2 it was 12, 000 units, year-3 it was 10,000 Te Operations Directorate of the company is
units, year-4 it was 9, 000 units and year -5 headed by Director (Operations) and assisted
the order received for 7, 000 units. Actual by GM (Operations) at corporate level and all
orders received were almost in the above the SBUs are headed by GM (Operations) as
ratio in last fve years for the products of the already mentioned elsewhere. Te engineering
company. Te marketing directorate placed its works of each SBU has 585 uniformly employees
arguments in favour of downward order that under diferent hierarchies starting from
both quality and cost in particular and selling Operational Managers. It follows a scalar chain
price in general are having adverse impact on of 1:8 and it is maintained that 1-8-64-512 i.e.
fulflling sales target. Earlier, the company was one GM(Operations), eight Dy. GMs, sixty
the market leader for the products mentioned four Managers and fve hundred and twelve
above. Now market is very competitive (and Operational Managers are approximately there
practically it became a ‘red ocean’ now) and in the payroll of a SBU. Operations Directorate
afer sales service are ofered free for three is also controlling authority of Purchase
years to fve years by the competitors whereas functions and Research and Development and
MIL ofers only one year afer sales free service. Research and Development Cell is responsible
Te pricing policy is not reviewed for last two for value analysis and value engineering
years. Market Research (MR) cell is not in a including product designing. Cost of product
position to work in proper direction keeping is alarmingly high and cost reduction and
pace with at least for the purpose it was created. cost control policy and mechanism is in place
Te marketing information reports generated in paper only. Tis is the age of automation
by the marketing wing of the company both at and this hardly receives any priority in the
SBU levels as well as corporate levels reach late Operations Directorate.
to the board for taking appropriate measures
and decision. Director (Marketing) does not Employee cost is almost entirely fxed and
have sufcient information for reviewing the nothing other than material cost is variable.
performance of the sales force periodically. Overhead is semi-variable and it may be within
Sales are the part and parcel of the marketing a range of 20% as variable and remaining 80 %
directorate. Advertising and Sales Promotion is fxed. Te Cost & Management Accountant
Budget, according to the CMA of the company, (CMA) is of the view that activity based costing
is devoid of justifcation in terms of result. Te can bring about correct product costing and
incentive for sales force is hardly linked with hence in product pricing. Each product should
target achieved by the sales and marketing be burdened with its own cost and not that
people. Sometimes, marketing people blames of others. It is the general tendency of GM
production people for untimely delivery to (Operations), SBU-In-charge, to overrule the
the customers. Tere is continuous complaint recommendations and suggestions of the CMA
concerning production of sub-standard posted at the SBUs. Te material cost variance,
product which does not conform to the true labour cost variance and overhead variance

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