Options for Company in Financial Difficulty

Options for Company in Financial b an new(prenominal)(prenominal)Introduction in that respect argon a few elections for S.B. Ltd to consider acquiring through voiceless times. The five main options ar firstly, to discontinue the Nottingham divergence and Leicester and Loughborough sub voices could use their spare capacity to nominate 60% of Nottinghams 2010 yield in addition to their own 2010 output, close the Nottingham persona and outsource Nottinghams 2010 output, to launch a major campaign for every last(predicate) 3 harvest-times to enlarge their sales, to introduce a carry pricing system in the midst of the division and the head character to increase motivation among the staff in to sever completelyy one division and rightsizing the organisation.DiscontinuationAs seen Nottingham is not making growth, in reception to market forces, the first option is to discontinue Nottingham division by interchange its assets and settling its liabilities and shifting product ion from Nottingham to Leicester and Loughborough. The discontinuation finale is a decision when the division realizeability highlights the potential of un paying (Drury, 2010, pp.91-92). In this option, assuming that Leicester and Loughborough mother some spare capacity to produce 60% of Nottinghams 2010 output on top of their own 2010 output. match to Drury (2010, p.92), discontinuing the Nottingham division could aid the partnership in eliminating comprise of goods change, and other variable cost in the division. other cost such as advertising costs, distribution costs and degree Office costs remain unchanged and is not modify by the discontinuation of the Nottingham division. OHare (2010, Management Accounting Lecture 3) suggested other factors which go forth affect an organisation to discontinue a division, the division is making a loss, to identify avoidable costs or to discover other saving.OutsourcingOutsourcing option is also know as sub-contracting option has bec ome more(prenominal) than and more common in organisations, which enables organisations to concentrate on their core performance musical composition outsource other specialist their secondary activities (Collier et al, 2007, pp.220-221). In S.B. Ltd case, according to Oxford University machinate (2009), outsourcing could help to get through this hard time by liberation on a process of business process downsizing. Outsourcing al impoverisheds trading operations that go seasonal demands to bring in additional resources in time of needs. former(a) advantages of outsourcing are, outsource activities will allow S.B. Ltd to focus on important economic consumptions without sacrificing tint or service, outsource specialist could help improve the reference and exemplification of the jam. It may also be able to purchase the jam more cheaply or perhaps more quickly.Assuming the outsource charge for raspberry jam is 20% more then the cost of goods produced and sold for raspberry ja m. Hence, the sales of raspberry jam remains the same and Leicester division and Loughborough division have spare capacity which gives them room for expansion of 30% more sales separately. All other expenses remain the same for both(prenominal) Leicester and Loughborough divisions. This gives the Head Office a net profit of 76,000On distant to the advantages, outsourcing the jam to some specialist could lead to risk of unsatisfactory pure tone and regular of the jam. Other disadvantages could be leak of procedures and techniques of making the jam, outsourcing usually focuses on short-term cost-saving, and ignores the unchanged overhead burden.Major CampaignAnother option is to launch a major advertising campaign for all iii products to increase their sales and keep all three divisions. Advertising could go on awareness and generate demand of the sales of jams of S.B. Ltd. and hence acquiring more orders.In the advertising campaign, assuming the advertising cost increase by 20 % and it bring the sales of for each one product to an increase of 20% each. It simply boost up the profit of the company to 96,000.Transfer priceThe other option is when an organisation chooses to decentralise its divisions, imparting pricing helps adjudicate what price to charge for in-company transactions (Collier et al, 2007, p.38-39) and as a form of promoting divisional autonomy (OHare, 2010, Management Accounting Lecture 8). It is useful when goods are transferred between divisions hence, the performance measurement of each division is not prejudiced by the corporate objectives. The profitability of each business units will be affected and according to Solomon (1965 cited in Collier et al, 2007, pp.38-39), companies strength take advantage of the transfer pricing which are suitable for evaluating divisional performance for the corporate interest, sooner of the business units. Transfer pricing strategies and privy produce substantial evaluate savings in addition to enha ncing operational performance and change currency flow. In many organisations, in order to avoid de-motivating effects on different business units, negotiated prices are adopted.Say, each product is transferred to Derby division and it pays each division 70% of the sales it do from selling all the jams and yet still bare the cost of advertising, distribution and the head office costs. The local administrative expenses shall be bare by the respective divisions.There are downsides of transfer pricing. The political process in an organisation might affect the transfer pricing between divisions. Incorrect prices adopted can distort reported performance, by making some divisions more profitable at others expense. Opportunities exist to avoid taxes using artificial transfer prices to transfer profits from a high tax division to a low tax division.RightsizingRightsizing, or corporate restructuring, with the aim of reducing costs and improving efficiency and effectiveness is also one opt ion in difficult times. Rightsizing is downsizing in the belief that an organisation really should operate with fewer personnel. The primary reason to engage in rightsizing is to make the daily operations of a business more productive. For example, a company may be able to replace assembly line employees with machines which will be faster and less prone to error. In addition, rightsizing increases profits by reducing the overall overheads of a business.S.B. Ltd operates a full cost (TAC) timeworn costing system. The standard costs set fot the year 31 March 2010 and information active future costs and selling prices are in Appendix 2. assort 2 (700)Assuming the company decided to go for the option of charge all divisions open and launching an advertising campaign, you are required to produce a standard cost measure for each product and a budget for the company showing clearly the costs attributable to each division for the year to 31 March 2011. State clearly all assumptions ma de.Standard Cost CardA standard cost eyeshade can be defined as a detailed listing of the standard amounts of materials, labour and overheads that should go into a unit of product, multiplied by the standard price or rate that has been set for each elements (Anon 2, 2010). A standard cost card, for example must include the price, specifications, quantity and quality of material required, as well as such factors as the design of credit allowed from suppliers, cash and quantity discounts, spoilage due to wastage and deterioration. A standard cost card demands an investigation of all contributing factors that can cite a cost before the cost is adopted. According to Drury (2010, p.278), standard costs are predetermined costs and they are the target costs that should be incurred under efficient operating conditions. The standard cost card will be subjected to updating caused by revision of standards such as changes in prices, discounts, etc.Standard costing is a come across system w hich sets standards that are ideal, evaluate and achievable (OHare, 2010, Management Accounting Lecture). Collier (2007, p.36) put frontward that standard costing is a control technique which compares standard cost and all of production grosss with actual results. It is to obtain variances of each division and product (OHare, 2010, Management Accounting Lecture 8), which are used to stimulate improve performance and to increase motivation of staff in each division. It is a detective control used to prevent problems from reoccurring as it measures variances as it occur, thereof allowing management to take necessary corrective action.The standard cost card for the year ended 31 March 2011 (per batch of 40 jars each 500 grams) for Strawberry Jam, Raspberry Jam and Orange Marmalade are as below calculateThe principal tool in planning is called a budget. A budget is a collection of predictions. It is an estimation of the revenue and expenses over a specified future period of time. Th ere are three purposes of budgets as identified by Emmanuel et al (1990 cited in Collier, 2007, pp.39-40), as forecasts of future events, as motivational targets and as standards for performance evaluation. Budget is a financial plan or qualitative statement for implementing the heterogeneous decisions to be pursued during a specific accounting period, that management has made in the previous period.Collier (2007, pp.39-42) suggest that budgets provide a control machine through both the feed forward and feedback loops. The control mechanism in the budget is to provide a performance monitoring function to the appropriate managers who are responsible for implementing the various decisions by producing and presenting the performance reports. According to Drury (2010, pp.8-9), the performance report provide feedback information by comparing plotted and actual results.Generally, a functional budget is drawn up for each division of S.B. Ltd. These budgets are, then, merged together into a single combined statement, which is known as the master budget, of S.B. Ltds expectations for the future periods. The master budget consists of budgeted profit, which it is expected to convey to everyone in the organisation the part that they are expected to earn in implementing managements decisions. The master budget, usually, consists of a budgeted profit and loss, a budgeted balance sheet and a budgeted cash-flow statement. In order to finalised a budgeted profit and loss, other budgets for the individual divisions and produced, such as the sales budget, direct materials use budget, direct materials purchase budget, direct labour budget, and selling and administration budget. have the best BudgetBudgeted Profit and Loss Account for the year ending 31 March 2011Forecast sales (Schedule 1)816,000Purchases (Schedule 3)Materials Fruit130,272