Academic journal article Journal of Financial Management & Analysis

Systematic Approach to Correct the Cross-Subsidization of Product Costing to Arms-Length Price : A Case Study of Jina Bakul Forge Private Ltd : Belgaum, Karnataka State of India

Academic journal article Journal of Financial Management & Analysis

Systematic Approach to Correct the Cross-Subsidization of Product Costing to Arms-Length Price : A Case Study of Jina Bakul Forge Private Ltd : Belgaum, Karnataka State of India

Article excerpt

Introduction

Cost is the total of expenses for goods or services including money, time, and labor; it's a part of expenditure. In a competitive context, it has not only become difficult, but also crucial to market a product at an exclusive advantage of the marketer/businessmen/seller. In other words, in addition to a few rights as a common citizen, every stakeholder has a moral, ethical, and business right to know about the different attributes of a product/service. That is, it's cost, benefit and effectsin terms of value, service, utility, and price. Hence, management of business and operating risk through behavioral approach at work place and with outside stakeholders has become an integral aspect of businesses. Shah1 indicates that business or operations risk pertains to the product market in which a firm operates and includes technological innovation, product design, and marketing. That is, businesses cannot afford to do away with technology, they have to adopt, train, create value and share a portion of value to all such stakeholders.

To compete successfully in the present competitive environment, organizations have become 'customerdriven' and consider customer satisfaction an overriding priority. JBFL conducts customer meet every year at different locations of its customers and incorporates a primary feedback it receives. Customers in a market are demanding; ever-improving level of products/services-in terms of cost, quality, reliability, delivery, and the choice of new innovative products/services. Quality has become one ofthe key competitive variables and tins has created the need for management accountants to become more involved, alert, vigilant and investigative in the provision of information relating to the quality of products and services, and activities. Plunkett2 has found that, in U.K. quality-related costs have been reported to range from 5 to 15 per cent of total company sales revenue.

Prelude

Rao3 in his analytical contribution on automobile industry, die automobile industry is one ofthe building blocks of tiie world's most influential economies such as the U.S.A. and Japan. The automobile industry, a key sector, is all set to play a similar role in India. Today, the industry is among the most vibrant, modern, and growing markets in the world. India is die world's second biggest market for two-wheelers after China, the fourth largest commercial vehicle producer, the eleventh largest passenger car producer, and the largest tractor and threewheeler producer. By 2050, India is expected to top the world in car volumes with approximately 600 million vehicles on the road. With such philosophy, practice, and market requirement in mind, businessmen in general and JBFL in particular need to manage the 'cost' with utmost care, dignity, and respect in all aspects of business activities. Jinabakul Forge Pvt., Ltd. (JBFL) manufactures its products with a gauge of steel as specified by its customers, to ensure the worth of its cost in-built strength, and life to bearings.

Maruti Udyog with its focused drive on cost reduction and improvement in productivity had introduced a new system called Production Management System (PMS) on the shop floor. The system, that involves shop floor employees, is designed to improve safety, quality, and productivity in in-housemanufacturing operations. At Maruti, productivity has shown a steady improvement year-after-year as measured by hours per vehicle (HPV); man hours spent for producing a vehicle has also shown an improvement of 9.3 per cent in the year 2006-07; and has scored an impressive efficiency and effectiveness with an elimination of all forms of waste. Fujio4, while focusing on challenges before manufacturing industry refers to waste as anything other than the minimum amount of equipment, materials, space, and worker's time, which are absolutely essential to add value to me product. JBFL encourages employees to suggest an innovative practice, cost reduction methods, healthy relation initiatives on shop-floor, and recognize such employees with incentives & awards during promotions. …

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