Acc 550 - Cost Accounting - Final Project

Inventory Management and Benchmarking

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Based on the relevant costs, the optimal cost allocation ought to be the total value of the fixed and variable costs. The value stands at $655, 525. The decision makers in the firm normally use the optimal cost allocation to achieve various responsibilities. Some of these responsibilities include explaining the major purpose as to why certain costs are allocated to a particular project in the firm. It also helps to explain the relationship between various activities, costs, cost drivers, and resources in the company. Moreover, it identifies the best methods for allocating the central costs in an organization. With the help of the optimal cost allocation, one is in a position to effectively calculate the activity-based costs for the cost objects.

The just-in-time (JIT) inventory system is a systematic way to manage the inventory in the company. It optimizes the inventory costs while also minimizing the stock-outs. It requires a close relationship to exist between the vendors and advanced technology so as to allow for the automated ordering processes and fast delivery of both merchandise and supplies. The pros of using the system are that it reduces the markdowns in the company besides lowering the inventory costs of the firm. It also has the advantage of minimizing wastes through the limitation of the number of items that get thrown away because they get spoilt like umbrellas.

The major disadvantage of the system is that it comes with certain security risks like sharing certain critical data with the clients and suppliers. It may lead to the potential breach of both the trust and confidential information (Muller, 2011). The hackers can access the vital info and take the advantage of accessing the company’s data. However, it is prudent to acknowledge that the pros of using the system outweigh the cons in this company. I can strongly recommend the application of maintaining perpetual inventory management method. It is because the system will help the company to increase its volume of sales and consequently result in an increase in the net revenues realized by the firm.

Benchmarking is very essential when it comes to the aspect of improving the performance of the company. The advantage of benchmarking is that it shows the effectiveness of the product in the market. It enables the company to realize that the product needs some form of an upgrade so as to become more competent in the economy. It advances the quality of the product and makes the clients prefer it over other similar products in the market. It is an imperative continuous process in the company that assists in improving the quality of the product.

There are three main approaches to benchmarking. One, strategic benchmarking is meant to identify the best means through which the product can compete in the market. Two is the performance benchmarking. Its key objective is to compare the company’s products and services to those of the competitors. Lastly, is the process benchmarking that looks into the activities of rival firms and applies the best practices in the firm’s processes so as to improve the quality of the product 9Great Britain, 2007).

The management of the company needs to adopt the process benchmarking. It is because it will tremendously improve the quality of the products manufactured by the firm, and this will increase the demand for the products made by the firm. It will increase the volume of sales of the company and consequently lead to the increase in the net returns of the company.

References

Great Britain. (2007). Benchmarking and market testing the continuing services component of PFI tasks. London: Stationery Office.

Muller, M. (2011). Essentials of inventory management. New York: AMACOM.