1 . 0 Introduction Colgate- Palmolive is one of the leading client product agencies that have been working its products in worldwide. Colgate- Palmolive is usually an America based business and has its own branches around the globe.
One of the divisions is located in Malaysia. Colgate- Palmolive (M) Sdn Bhd centering their product segment upon toothpaste and toothbrush. The two products are extremely competitive at this time in Malaysia market. At the present, Colgate is implementing Activity-Based Costing (ABC) method.
ABC is a program had been methods in many companies for being a device to actions the cost and performance of the activities and the expense objects. Hence, the administration should check into ABC program which uses to provide better information intended for decision making in determining costs by price object just like product, client, and location plus the cost pool area of the firm. 2 . zero Keys Areas for Improvement According to Reuben Tag (2003), Colgate Palmolive features highlighted their strategy of developing and launching new products globally continues to enhance the company’s marketplace leadership positions around the world.
Consequently, it does affect Colgate Palmolive Malaysia. Indeed the rendering of activity based being by Colgate Palmolive (M) provide information for reaching its programs since the FONEM is charging technology that traces price to items according to activities carry out on them. Appropriate cost data is created as to such purposes, concentrating company strategy, designing items to increase buyer value, and continuously bettering activities within the operation through the entire company (Peter, 1989).
On the whole, the HURUF system cover such following area of activities including product design and processes, storage area of recycleables, set up of machinery to make certain a smooth movement in the production range, machine operating time along with cleaning of machine after each production. Product design and style is crucially for Colgate Palmolive (M) to survive on the market and leading the position. Innovation allows the business to continue working and thus create the competitive advantage about product differentiation. The research and development certainly plays part for this rocess such example where Colgate Palmolive worked on improving detergent packaging through quality executive (Boehmer, 2008). Meanwhile, storage of recycleables ensures the effectiveness of the company in handling their inventory. Chilshom (2000) explained that the potential areas intended for optimization in production can be through reducing of item lead instances in which qualified prospects the Colgate Palmolive (M) to an embrace machine capability, a reduction of inventories, shorter, and an increased customer satisfaction hence also contributes to increased revenues in a demand driven-market.
Besides, by increasing unit costs where a decrease of the models costs can be achieved by a top degree of equipment capacity usage. Having correct cost info will allow Colgate Palmolive to identify activities that are not successful and crucial, eliminate waste materials and reduce costs while bettering the quality of these products. 3. 0 Steps for every single Activity You will find arguments stated that traditional costing (TC) method may misrepresent an expense of the item where it could have deceive the administration doing the resolution relating products (Briers, M., Luckett, P. and Chee, C. 1997). Relating to Mansur, N. In., Tayles, Meters. and Pike, R. (2012), the TC method apportion the indirect costs based upon a single component when the selecting a product price. The aspect such as number of direct time hour or number of equipment hour was used to apportion the roundabout costs. This has created unfairness in costs apportionment in to product while different activity provides distinct incurrence of cost. Furthermore, different item consumed diverse level of costs in different activities. Therefore , DASAR method is formed to solve the regular costing flaw.
ABC technique emphasizes on each of your of the activity consumption that needed for producing a product. For the expenses to be sustained into the items, the resources, activities, costs and quantities are to be identified (Mansur, N. N., Tayles, M. and Pike, R., 2012). The allocations vary to products usage in different activities. Therefore , managing can makes decisions effectively. 3. 1 Cost Thing Cost target can be client, product, assistance or any various other work product for which another cost measurement is ideal. The ideal cost object can be “products that are individual items that are sold to customers.
Relating the cost of actions directly to the merchandise that ingest the activities may be the basis intended for product costing using the ABC system. To operate effectively, expense drivers should be selected with specific merchandise. Besides that, the customer costing which is the calculation in the total from the total cost of serving a client makes it possible to measure the profitability of possible both individual or group of clients. Hence, the charge object differs from the others for different companies but there are similarity cost object in the industry which is products and buyers. (Gunasekaran, A., 1999) three or more. 2 Price Driver
Ahead of a cost new driver is chosen, the administration needs to accumulate up the activities in the developing process which then needs to record the cost of every activity sometime later it was choose the ideal driver pertaining to the activity (No, J. T. and Kleiner, B. H., 1997). *A cost driver is a aspect that has immediate influence on the cost and performance of the actions. The cost individuals provide the ideal explanation of why the expense in an activity cost pool change after some time. The activity cost pool is a total price associated with a task. Cost drivers is a varying used while denominator inside the rates utilized to apply activity costs to product or perhaps cost objects.
In practice, it is also possible that the volume of cost individuals exists for the similar cost pool. For example , purchasing activity’s price pool has different expense drivers such as the numbers of purchases, number of suppliers and quantity of parts ordered. (Gunasekaran, A., 1999) several. 3 Computation of Total Cost and Cost Drivers Colgate-Palmolive features numerous goods with many activities and various cost drivers and taken toothpaste and toothbrush as an example for HURUF calculation. Suppose the following was your information of toothpaste and toothbrush creation. ||Toothpaste |Toothbrush || |Number of units produced |30000 |20000 || |Direct Materials |450000 |350000 || |Direct Labours |350000 |50000 || |Activity |Cost Driver |Cost Rider Volume |Total | |Setup |Number of setups |150 |50 |200 | |Making |Machine Hours |3000 |2000 |5000 | |Inspection |Number of inspection |100 |100 |200 | Table three or more. 1 Information of relating toothpaste and toothbrush Activity |Overhead Costs | |Setup |150000 | |Making |750000 | |inspection |100000 | |Total Overhead Costs |1000000 | Desk 3. a couple of Overhead costs for toothpaste and toothbrush If perhaps calculate the system cost by simply assuming employing machine several hours as the element. |overhead costs/ equipment hour |= |1000000 | || |5000 | ||= |200 / machine hour | |Toothpaste |Toothbrush | |Direct Materials |450000 |350000 | |Direct Labours |350000 |50000 | |Overhead costs |600000 |400000 | |Total Costs |1400000 |800000 | |Number of models produced |300000 |200000 | |Unit Cost |4. 67 |4 | Table 3. Affirmation showing calculations of unit cost applying traditional technique Below show the calculation of unit price using FONEM method. |Activity |Cost per driver | |Setup |750 per installation (150000/200 setups) | |Making |150 per machine hour (750000/5000 machine hours) | |Inspection |500 every inspection (100000/200 inspections) | Table 3. 3 Calculations of rider for each activity. |Toothpaste |Toothbrush | |Direct Elements ||450000 ||350000 | |Direct Labours ||350000 ||50000 | |Overhead Costs ||||| |Setup (750 per setup) |112500 ||37500 || |Making (150 per machine hour) |450000 ||300000 || |Inspection (500 per inspection) |50000 ||50000 || |Total Overhead Costs ||612500 ||387500 | |Total Costs ||1412500 ||787500 | |Number of units developed ||300000 ||200000 | |Unit cost ||4. 7083 ||3. 9375 | Stand 3. Affirmation showing calculation of unit cost of tooth paste and tooth brush using DASAR method. |Particular |Toothpaste |Toothbrush | |Traditional Method |4. 67 |4 | |ABC Methods |4. 7083 |3. 9375 | Depending on the calculations shown in the table previously mentioned, product toothbrush price is below traditional technique and the merchandise of tooth paste is underpriced in using the traditional technique.
Even though, the price between both equally products are generally not much in difference but it really can be stated that FONEM system better measurements the resources consumed pertaining to both goods. 4. zero Increased in National Market Share in Context of Expense Leadership and Product Difference Bhimana, A., Horngren, C. T., Encrasar, S. Meters., Forster, G (2008) state that the cost management is one of strategy within a business supply the average merchandise at spend less for a largest possible market. Product difference is the strategy to focus offers the unique item by creating new products (innovation). Therefore , Colgate Palmolive is definitely considering and focusing to challenges through two basic of strategies: distinguishing its merchandise and achieving the price leadership.
It could see that Malaysia had chosen by Colgate Palmolive because has higher market share of tooth comb and the teeth paste. In fact , Colgate was selling a lot more than 30 sorts different items of teeth paste and it is most well-liked brands’ brand in Oral care. By simply differentiating these products, this company produces the different cool product form the other competitors including focusing on the look and packaging of the teeth brush ought to be innovative, colourful and exclusive then help to make customer interested and touched to those products. The cost of the teeth brush and tooth paste usually based on the quality of products, and it might allow Colgate to fee a higher price.
Right here, the solution should be to reduce the costs and developing the new label of product and technologies. Clearly, Malaysia has successful expense leadership could generally maximize Colgate Palmolive Sdn Bhd’s market share and make this business to grow up. 5. 0 Features of ABC Program One of the advantages of ABC is the system provides more accurate charging. ABC system is the method which is useful for all types of business (Hansen, D. Ur. and Mowen, M. M, 2007). For instance, Colgate Palmolive uses the ABC software program that can measure the cost of its activity and cost subject. The reason of Colgate Palmolive adopted the ABC product is to provide the greater accurate revelation of the cost of program and services.
Furthermore, Colgate Palmolive implemented the ABC program which helps the administrator easily understand the impact of products and consumers variety about profit perimeter. After that, this kind of ABC system took the in just how this company moved into orders from its customers, how the packaged purchases, how shipped orders, and spent time for you to deliver that to each clients location. This kind of ABC system has helped Colgate Palmolive acquire the large national customer because it offers identified , the specific developing, distribution, and handling costs related with serving this customer”. Furthermore, FONEM provide support on functionality measurement where the information offered on expense drivers and cost rider rates reveals great important power in staff actions and employed as functionality measurement.
Cost drivers present volume procedures on different facets of operational performance which in turn reflect the potency of the activity worried. When linked to costs, the price drivers will help in determining the effectiveness with which activities are performed. Colgate- Palmolive can Additionally , the in depth information by simply ABC system assists managing in making decisions about product profitability. The reason is , ABC employing unit price rather than the total cost upon making decision. Management can easily evaluate how the current product and method designs have an effect on activities and costs as a method of identifying new models to reduce costs. Colgate may do research based on the present product costs to do realignment on the new releases that going to be kick off. 6. zero Conclusion
The game based charging is one of the tools of proper management accounting which allow the Colgate Palmolive (M) to measure the price and performance of the activities as well as the cost things. It does offer more accurate info for making decisions in identifying costs by simply various price object. The implementation of ABC program by Colgate Palmolive (M) is strongly in line with the objective of the company to leads available in the market of mouth, health and care industry in Malaysia. Innovation in its companies having a lower cost in the market with a good quality usually get into the attention of the company as these product differentiation and cost command are the crucial for the competitive benefits.
