General Electrics Allocation of Costs - Essay Example

?General Electric’s Allocation Of Costs Introduction Cost allocation is the most important task in any organization, as this task ensures that all the relevant heads get the relevant budgets for a proper allocation of resources. The purpose of cost allocation is for many reasons. The costs should be allocated keeping in mind the benefits. This will help in identifying, in an organization such resources which needs cost for buying capital, managing cost for buying raw materials and inventory, costs for salaries, operational and various variable costs are needed to get the organization going. General Electric and Cost Allocations At General Electric’s managers are very much concerned about the allocation of costs as these allocations are required for the proper delegation of resources and cost to the respective department. Manager at GE realize that the cost allocation to different divisions, plants, departments, contracts and/ or products will result in increased motivation for the organization, it will also justify costs of various expenditures as these would than be used by the auditors to audit and overlook all the managerial activities so that there are no issues arising at General Electric. Also, in order to justify cost plus pricing, General electric is involved in cost allocations and in strengthening the cost of the procedure. They are also involved in decision making with regards to joint costs, re allocation of costs from one department to another department as need arises. GE makes sure that the allocated costs are fair, workable, and rational and according to the needs of what is required by all the departments. Allocating costs for the handling and managing of different activities have to be simplified in various ways, this simplification will ensure that the targets for the companies are achieved and that the targets achieved should give maximum profitability for the company. The products of General electrics include lights, bulbs etc all go through manufacturing process to the finished stage where it has to be marketed and sold in the market. So it is important that the manufacturing sector gets the required budget for the manufacturing through their raw materials, the proper supply chain processes and than the marketing should also get all the required budgets to handle proper marketing and selling for the company. The budget that is circulated in the company, managers can't surpass that and hence this is the only way through which employees can manage the way they negotiate in their dealings to conduct more cheaper and inexpensive work. Departmental budgets and costs are a good way to keep the company and all department effective and informed about how they get their departments to work on these lines and hence they adapt themselves to work in a culture which motivates all the employees, justifies all the costs that are accrued and also it justifies the way they make their expenditures. All the departments' accrues costs, but the heaviest department is marketing, as all the marketing activities are very expensive and they are conducted on a large scale. The activities that are conducted on a large scale employs that bigger expenses would be done to meet the expectations of their competitors. Like if GE wants to make any advertisement, it will accrue cost, if they want to get some marketing done through sponsorships and other such related stuff than it is also expensive. So it's important to track all the activities and to see it's impact on sales. If sales are not improving than there's no point of all these heavy ativties and hence it is important to do all but keeping in track of the sales situation. As with inflation the cost of doing business is also increasing. The raw materials are expensive, the duty on these raw materials is also expensive and the way to procure them has also become very expensive. So at every stage proper analysis has to be done and controlled budgets have to be allocated with all the departments to keep a proper check and balance on these situations for future growth. Activity-Based Accounting and Competitive Advantage in the Market Place Activity based accounting means to conduct activities regarding the execution of different things. At GE the culture entails that all the decisions that are taken has to be based on activity based management for the betterment of the company and to establish a connection for all the decisions that have been taken. The activity based costing model is one of the special models that provide costing for the development of their brands. This model ensures that the right kind of product gets the right kind of costing. This management style deals with managers making decisions with regards to different departments like RnD, Marketing, Sales and other such initiates. Activity based management at GE deals with people informing and telling them about taking the right sort of decision about how to tackle the products and how these products will require what sort of values to associate with and the sort of customer satisfaction that will be gotten out of the whole procedure. At GE Activity based management also handles the whole vale chain process in terms of all the departments are assessed for and they are looked at the value which is created for them, this will ensure that all these processes are correct and the right department has been connected with the right sort of strategy for it. Activity based and cost based management needs to be properly matched. This should be matched to produce results which are equally good in achieving the most exciting results. These approaches make sure that managers perform their best to contribute to the success of the organization. The approach would justify the cost that is going to be accrued with the managerial decision that is established with it. Activity based management involves all the projects, the new technology, the new machine, the new system the new soft wares that the company wants to invest in to be associated and matched with the cost that it will incur to have it installed. This will create demand for people who are good in management accounting as it teaches both management perspective and cost perspectives. At GE proper pool of talented people have been recruited to ensure that the decisions that they are taking should meet the aims and objectives of the organization. The aims of GE include increasing revenue, to increase profitability, reduce cost and to improve shareholder's wealth. These aims provide solutions to the company to achieve the most important aspect of the company, growth and profits. The company ensures that these methods are followed and that people are adapted in achieving these methods. Proper trainings are given to the employees and proper mentoring is done so that employees meet all the required analytical workings of the required company. Standardized Costing and Inventory Costing Methods For General Electric, the method that they employ is for inventories are LIFO which is last in first out. Most of the portion of GE electronic is counted on LIFO method. The rest of the inventories are calculated on the basis of FIFO which is first in first out. By using LIFO they have managed to cut down on their taxable income and hence through using LIFO they know that they can manage to cut down for their taxes. By using LIFO cost and sales can also be equally matched. Since all the recent costs are matched with all the recent sales and hence this method is a good option for having a matching principle, and at GE it is all about having the best fir for the best matching principle for the company. All these methods are employed to keep track of their accounting practices and to ensure that these practices meet the standards of the company. When evaluating the basics of General electrics, it is important to ensure that the method that is applied should lead to a better way and should ensure effective delivery of company's objectives Conclusion At GE everyday there are many decisions that need to be taken for the betterment of the society, each decision that is taken has a cost, the cost is what makes the product seem relevant or non relevant. The costs determine variances between actual production cost, standard and budget costs models and it also highlights where all the business improvements can be made. To control different costs, budgets are made and prepared to analyze the workings and investments that have been made. Forecasting is also done to control cost expenditures and to control the way these costs are taken. Budgets are very important for a company; budgets are made and kept to ensure that the company doesn't go beyond the expenditures that have been made. References 1- "Scholar lib", www.scholar.lib N.p,,n.d.Web 14 May 2012 2- "Student view", www.connect.mcgraw-hill N.p,,n.d.Web 14 May 3- "Reference for business, N.p,,n.d.Web 14 May Read More