Management And Cost Accounting: Leadership Essay

Question:

Discuss about the Management and Cost Accounting for Leadership.

Answer:

The background of Woolworths can be stated as it is the longest supermarket chain from Australia. Operating more than 1990 stores all over Australia, the company runs its business through 11,500 team members with distribution centers, stores and the support offices for providing the customers with wide range of services, convenience, value and superior services. As it falls under the most innovative Australian retailers, the company is well aware about the fact that the customers always look for simple and new way for shipping and accordingly provide the customers with comfortable experience of shopping (Woolworths.com.au 2017).

The company recognizes the cost – leadership approach as the action set for delivering or producing the services or goods at minimized cost as compared to the competitors along with various acceptable features to the customers. To get maximum output at the minimized cost, the company developed “sale-up / costs down” approach for last few years that were designed to reduce cost associated to production and Woolworths successfully applied the strategies to lower their prices (Mortimer and Ingersoll 2015). Looking at the financial statement of the company, it can be identified that the cost of goods sold of the company is directly related with the increase or decrease in the sales level. However, the cost of doing the business for the year 2016 is higher as compared to the sales level as it reached to $ 13,074.5 million as compared to $ $ 12,702.4 million in 2014. Looking at the rent expenses it is identified that the rent of the company is in increasing trend and from $ 1898.70 million in 2014 it went up to $ 2033.9 million in 2016. However, the company was able to make payment of its borrowing during the year that reduced the finance cost of the company during 2016 to $ 207.7 million from $ 218.9 million in 2014 (Woolworths.com.au 2017).

The cost leadership approach is used by the company for cost reduction with regard to the operating cost like just-in-time approach. This strategy is used for managing the products in the supply chain for reducing the wastage cost and storage cost through making the goods available to the retailers exactly at the time when they require the goods. To implement the strategy efficiently the company is required to implement the cost replenishment approach efficiently for forecasting the expected demand for the future period. The benefits of this strategy will reduce overall cost through cutting off the storage cost and wastages and increasing the margin of profit (Klein 2017). However, the primary challenges that the company faces here is the long range of distance between suppliers and stores as the suppliers of Woolworth is scattered all over Australia. Apart from this, the storage costs are expected to rise if the system of prediction gives poor performance (Fernie and Sparks 2014).

There are various social benefits and value additions through minimizing the wastes as it deliver the regular opportunities to the communities and the cost forecast and budget of the company can be prepared as follows –

Particulars

2017-18 ($ m)

2018-19 ($ m)

2019-20 ($ m)

Budgeted sales

39,000.00

40,950.00

42,997.50

Less: cost of goods sold

30,030.00

31,941.00

32,248.13

Gross profit

8,970.00

9,009.00

10,749.38

Expenses

Depreciation on fixed asset

170.00

182.00

178.00

Amortization of intangible assets

25.00

28.00

32.00

Employee remuneration and the on-cost expenses

4,200.00

4,700.00

4,600.00

Superannuation expenses

720.00

610.00

680.00

Expenses towards share-based payments

120.00

110.00

90.00

Minimum lease payments

1,200.00

900.00

1,400.00

Other operating expenses

400.00

670.00

320.00

Total Expenses

6,835.00

7,200.00

7,300.00

Net profit before interest and tax

2,135.00

1,809.00

3,449.38

Less: interest expenses

560.00

410.00

730.00

Net profit before tax

1,575.00

1,399.00

2,719.38

Less: Tax expenses

614.25

517.63

1,087.75

Profit after tax

960.75

881.37

1,631.63

From the above budget, the performance of the company can be analyzed as that the sales of the company will increase by 5% over the next 3 years and the cost of gods sold will be 77% and 78% for the year 2018-19 and 2019-20. However, the company is expected to reduce the COGS and bring it to 75% in 2019-20 (Santos et al. 2015). Further, the depreciation expenses of the company will increase during 2018-19 as compared to 2017-18 as the company is expecting to purchase a new machine for the factory. The amortization expenses will be in the increasing trend. Further, the superannuation expenses of the company are expected to reduce during 2018-19 as few employees are retiring in the previous year (Arli et al. 2013). It can be noted from the budget that the expenses that are expected to increase in 2018-19 as compared to 2017-18 are expected to be reduced by the company during 20129-20.therefore, it can be said that the company will take the necessary steps to minimize the cost wherever possible.

From the above analysis it can be concluded that Woolworths is one of the trusted brands in Australia in the retail sector and the company faces high level of competition owing the availability of the substitute products. However, the company can achieve competitive advantages over its competitors through offering the products at lower cost, which is possible through minimization of wastages and curtailing the expenses, wherever possible.

Therefore, the company is recommended to diversify the range of products in the future years. For instance, Woolworths became more successful after taking over the liquor store from Dan Murphy for delivering the new product range in the same market for attracting new customers. This was a good strategy to achieve competitive advantage in a mature market like Australian retail market. Along with reducing the wastages and cost, the company is also suggested to provide the communities with their requirements and preferences in which they operate.

Reference

Arli, V., Dylke, S., Burgess, R., Campus, R. and Soldo, E., 2013. Woolworths Australia and Walmart US: Best practices in supply chain collaboration. Journal of Economics, Business & Accountancy Ventura, 16(1).

Fernie, J. and Sparks, L., 2014. Logistics and retail management: emerging issues and new challenges in the retail supply chain. Kogan page publishers.

Klein, M., 2017. African retail darlings. Personal Finance Newsletter, 2017(435), pp.14-15.

Mortimer, D. and Ingersoll, L., 2015. The impact of deregulation on employment relations in the Australian retail industry. Employment Relations Record, 15(2), p.43.

Santos, M.D., Svensson, G., Padin, C. and H?gevold, N.M., 2015. Corporate risk exposure by implementing sustainable business practices-an African case. International Journal of Logistics Economics and Globalisation, 6(3), pp.223-235.

Woolworths.com.au. (2017). Woolworths.com.au. [online] Available at: [Accessed 13 Oct. 2017].

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