Monday, May 20, 2019
Toothpaste and Colgate- Palmolive
1. 0 Introduction Colgate- Palmolive is one of the leading leadr harvest-home organizations that permit been dealing its products in worldwide. Colgate- Palmolive is an America found troupe and has many branches all over the world. peerless of the branches is turn up in Malaysia. Colgate- Palmolive (M) Sdn Bhd focusing their product segment on toothpaste and toothbrush. Both products are very competitive curtly in Malaysia food market. At the present, Colgate is implementing Activity-Based compriseing ( alphabet) rule. rudiment is a arrangement had been practices in many organizations for being a beast to measures the represent and per shapeance of the activities and the equal objects. Hence, the management should look into rudiment remains which uses to forget more unblemished information for decision making in determining be by represent object much(prenominal) as product, customer, and location and the salute pool of the smart set. 2. 0 Keys Areas for Improv ement According to Reuben Mark (2003), Colgate Palmolive has highlighted its strategy of ontogeny and launching innovative new products globally stay puts to strengthen the companys market leadership positions roughly the world.Hence, it does apply to Colgate Palmolive Malaysia. Indeed the implementation of employment based termsing by Colgate Palmolive (M) provide information for achieving its plans since the ABC is cost technology that traces cost to products according to activities perform on them. Accurate cost information is produced as to such purposes focusing company strategy, proposeing products to cast up customer value, and continuously improving activities on the summons throughout the company (Peter, 1989).In general, the ABC establishment cover such following area of activities including product design and changees, storage of raw materials, set up of motorcarry to ensure a smooth flow in the ware line, cable car operating time as well as cleaning of mach ine after distributively production. Product design is crucially for Colgate Palmolive (M) to survive in the market and leading the position. Innovation allows the company to continue doing furrow and thus create the competitive advantage as to product diverseiation. The research and development therefore plays role for this rocess such example where Colgate Palmolive worked on improving soap packaging through quality plan (Boehmer, 2008). Meanwhile, storage of raw materials ensures the authority of the company on handling its inventory. Chilshom (2000) express that the potential areas for optimization in production is through shortening of product lead times in which leads the Colgate Palmolive (M) to an increase in machine capacity, a reduction of inventories, shorter, and a higher customer satisfaction thus also leads to increased revenues in a demand driven-market. also, by improving unit cost where a reduction of the units be piece of tail be achieved by a high degree o f machine capacity utilization. Having accurate cost data will allow Colgate Palmolive to identify activities which are non efficient and important, eliminate waste and curtail costs while improving the quality of the products. 3. 0 Steps for Each Activity There are arguments stated that tralatitious costing (TC) method can misrepresent a cost of the product where it might feel deceive the management doing the resolution relating products (Briers, M. , Luckett, P. and Chee, C. 1997). According to Mansur, N. N. , Tayles, M. and Pike, R. (2012), the TC method share the indirect costs based on a single element when the deciding a product cost. The element such as count of direct labour hour or number of machine hour was apply to apportion the indirect costs. This has created unfairness in costs apportionment into product as polar activity provides different incurrence of cost. Furthermore, different product consumed different level of costs in different activities. Therefore, ABC method is make to solve the traditional costing flaw.ABC method emphasizes on each of the activity consumption that needed for producing a product. For the overhead costs to be incurred into the products, the resources, activities, costs and quantities are to be identified (Mansur, N. N. , Tayles, M. and Pike, R. , 2012). The allocations vary to products consumption in different activities. Therefore, management can makes decisions accurately. 3. 1 Cost Object Cost object can be customer, product, service or any other work unit for which a separate cost mensuration is desired. The ideal cost object is products which are individual items that are sold to customers.Linking the cost of activities directly to the products that consume the activities is the basis for product costing using the ABC system. To operate effectively, cost number one woods should be selected with specific product. Besides that, the customer costing which is the calculation of the total of the total cost of inspection and repair a customer makes it thinkable to assess the profitability of affirmable either individual or group of customers. Hence, the cost object is different for different companies but there are similarity cost object within the industry which is products and customers. (Gunasekaran, A. , 1999) 3. 2 Cost DriverBefore a cost driver is selected, the management needs to gather up the activities in the manufacturing process which then needs to report the cost of each activity and later choose the suitable driver for the activity (No, J. J. and Kleiner, B. H. , 1997). *A cost driver is a factor that has direct influence on the cost and performance of the activities. The cost drivers provide the best explanation of why the costs in an activity cost pool change over time. The activity cost pool is the total cost associated with an activity. Cost driver is a variable used as denominator in the rates used to apply activity costs to product or cost objects.In practice, i t is possible that the number of cost drivers exists for the same cost pool. For example, purchasing activitys cost pool has different cost drivers such as the numbers of orders, number of suppliers and number of parts ordered. (Gunasekaran, A. , 1999) 3. 3 Calculation of descend Cost and Cost Drivers Colgate-Palmolive has numerous products with numerous activities and different cost drivers and taken toothpaste and toothbrush as an example for ABC calculation. Assume the following was the information of toothpaste and toothbrush production. Toothpaste toothbrush Number of units produced 30000 20000 remove Materials 4 vitamin D00 350000 Direct Labours 350000 50000 Activity Cost Driver Cost Driver Volume summation Setup Number of setups 150 50 200 Making Machine Hours 3000 2000 5000 Inspection Number of followup 100 100 200 Table 3. 1 Information of relating toothpaste and toothbrush Activity Overhead be Setup 150000 Making 750000 inspection 100000 Total Overhead Costs 1000000 Table 3. 2 Overhead costs for toothpaste and toothbrush If calculate the unit cost by assuming using machine hours as the element. overhead costs/ machine 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 units produced 300000 200000 Unit Cost 4. 67 4 Table 3. Statement showing calculation of unit cost using traditional method Below show the calculation of unit cost using ABC method. Activity Cost per driver Setup 750 per setup (150000/200 setups) Making 150 per ma chine hour (750000/5000 machine hours) Inspection 500 per inspection (100000/200 inspections) Table 3. 3 Calculation of driver for each activity. Toothpaste Toothbrush Direct Materials 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 produced 300000 200000 Unit cost 4. 7083 3. 9375 Table 3. Statement showing calculation of unit cost of toothpaste and toothbrush using ABC method. Particular Toothpaste Toothbrush Traditional Method 4. 67 4 ABC Methods 4. 7083 3. 9375 Based on the calculation shown in the table above, product toothbrush price is under traditional method and the product of toothpaste is underpriced in using the traditional method.Even though, the price between both products are not much in difference but it can be claimed that ABC system more accurately measurements the resources consumed for both products. 4. 0 Increased on National Market Share in Context of Cost Leadership and Product Differentiation Bhimana, A. , Horngren, C. T. , Datar, S. M. , Forster, G (2008) s tate that the cost leadership is one of strategy in a business offer the average product at swallow costs for a broadest possible market. Product differentiation is the strategy to focus offers the unique product by creating new products (innovation). Therefore, Colgate Palmolive is considering and focusing to these challenges through two basic of strategies differentiating its product and achieving the cost leadership.It can see that Malaysia had chosen by Colgate Palmolive because has higher market share of tooth brush and tooth paste. In fact, Colgate was selling more than 30 kinds different products of tooth paste and its around popular brands name in Oral care. By differentiating the products, this company creates the different new product form the other competitors such as focusing on the design and packaging of the tooth brush should be innovative, colored and unique then make customer interested and touched to those products. The cost of tooth brush and tooth paste ordin arily based on the quality of products, and it may allow Colgate to charge a higher price.Here, the solution is to reduce the costs and designing the new brand of product and technologies. Obviously, Malaysia has successful cost leadership could generally increase Colgate Palmolive Sdn Bhds market share and make this company to grow up. 5. 0 Advantages of ABC System One of the advantages of ABC is that this system gives more accurate costing. ABC system is the method which is useful for all types of business (Hansen, D. R. and Mowen, M. M, 2007). For instance, Colgate Palmolive uses the ABC software that can evaluate the cost of its activity and cost object. The reason of Colgate Palmolive adopted the ABC system is to provide the more accurate revelation of the cost of program and services.Moreover, Colgate Palmolive implemented the ABC system which helps the manager easily understand the impact of products and customers variety on profit margin. After that, this ABC system took the difference in how this company entered orders from its customers, how the packaged orders, how delivered orders, and spent time to deliver it to each customers location. This ABC system has helped Colgate Palmolive acquire the large national customer because it has identified the specific manufacturing, distribution, and handling costs related with serving this customer. Furthermore, ABC provide support on performance measurement whereby the information provided on cost drivers and cost driver rates shows great influential power on staff behaviour and used as performance measurement.Cost drivers provide volume measures on different aspects of operational performance which reflect the effectiveness of the activity concerned. When linked to costs, the cost drivers can help in assessing the efficiency with which activities are carried out. Colgate- Palmolive can In addition, the detailed information by ABC system assists management in making decisions about product profitability. This is because ABC using unit cost rather than the total cost on making decision. care can evaluate how the current product and process designs affect activities and costs as a mode of identifying new designs to reduce costs. Colgate can do investigation based on the current product costs to do adjustment on the new products that going to be launch. 6. 0 ConclusionThe activity based costing is one of the tools of strategic management accounting which allow the Colgate Palmolive (M) to measure the cost and performance of the activities and the cost objects. It does provide more accurate information for decision making in determining costs by dissimilar cost object. The implementation of ABC system by Colgate Palmolive (M) is closely in line with the objective of the company to leads in the market of oral, health and care industry in Malaysia. Innovation in its products and having a lower cost in the market with a good quality always get into the attention of the company as these prod uct differentiation and cost leadership are the key for the competitive advantage.