Successful Expansion of Dweeble Brothers Ltd. - Essay Sample

Introduction

Dweeble Brothers Ltd. has its operations based in the UK serving their customers with a wide array of highway hardware products. Expansion and growth of the company is characterized by an increase in the rate of distribution operations. Thus, this paper embarks on a detailed analysis of the dynamics that will have to be incorporate to make the expansive distribution operations successful. By highlighting the management accounting techniques, expounding on investment appraisal method, determining the extra costs to be incurred, as well as financial assessment of the enterprise helps in ascertaining the expansion initiative as viable.

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Management of Accounting Costing Methods

As the logistics manager for Dweeble Brothers Ltd, it is crucial to note that there are a series of management costing methods that need to be considered for the expansion of the distribution operation to succeed. These management accounting costing methods are essential since they help in the determination of the prices of the products by Dweeble Brothers Ltd. One of the costing methods that are to be used is marginal costing. The relevance of marginal coasting is that it allows variable cost to be considered. In the process of expanding the distribution operation, there are variable costs that are incurred. It is the case since the materials that will be used in production processes are bound be more thus increased costs (Guajardo and Ronnqvist 2016: 374) As a result, it is fair and necessary that the extra costs to be considered so that they can be incorporated in the cost of the goods that are to be distributed by Dweeble Brothers Ltd. More specifically, the distribution operation will be expanded with an increase in the number of the fleet as well as the warehouses used for storage purposes. Accounting for these extra costs makes it possible to enhance profitability and overlook the additional charges incurred in the process of expanding. Mahal and Hossain (2015: 67) explain that activity-based costing is the second technique that is to be used. It inviolves identifying overhead costs which are then assigned to the products. The benefit with the approach is that it helps to compensate the extra costs of production.

Of the two methods, activity-based costing is the best approach for the company. As a management accounting costing method, it creates room for extra costs to be incorporated to the final products making it possible to guarantee income targets in terms of revenue.

Investment Appraisal Method

Investment appraisal methods refer to the techniques which are used in assessing the value as well as the quality of any given investment. In the case of Dweeble Brothers Ltd, the venture that is to be made is the purchase of another warehouse that is based in Manchester. In addition to this, these methods help to ascertain whether a venture is viable in addition to being profitable. The payback period is the basic yet the most practical technique that can be used to determine if the decision to purchase the warehouse in Manchester, earning PS10 per pallet per week is viable and profitable (Hacker and Ernst, 2017, p.345). According to the payback period method, a sustainable project is one that can be able to generate sufficient cash-flow. In addition to this, the strategy also argues that the cost of any given project should be covered as soon as possible. For the case of the warehouse in Manchester, earning PS10 per pallet per week is quite profitable (Konstantin and Konstantin, 2018, p.40). For the whole year, the income will be PS 480. A warehouse in the region is estimated to cost PS 60,000 (Hacker and Ernst, 2017, p.345). Thus, yearly income from the warehouse will take an approximated 100 years. Going by this notion, purchasing the house is a dead investment as it will take a lot of years before the initial cost used to acquire the warehouse is recovered. On that note, the payback period discredits this move as it does not have financial viability to the company. Had the warehouse generated income that would allow the initial cost to be collected in 2-3 years, then it would have been a profitable option. Thus, the best choice for Dweeble Brothers Ltd would be to lease the warehouse instead of purchasing it. In doing so, it can be easier to expand the distribution operation as well as allowing room for profit to be garnered with limited expenses.

The table attached above is used in calculating the price of transport to move a rigid load of drains, manhole covers, and curbs. These materials are to be moved from Drain Makers Ltd in Wolverhampton to Swindon Borough Council. Between these two locations, a total of 91 miles is to be covered. A mark-up of 30% is included in the calculations that follow.

Labor cost assumptions such as the drivers working within the stipulated working hours are observed. By making this assumption, the extra costs for more shifts are avoided keeping the costs at a minimum. Hence, the extra costs for overtime are not incurred. Indirect costs are also included, which is at 30% of the incurred expenses. Assumptions on Return on Investment are made. According to this assumption, the transportation of the products from location A to location B is likely to bring about an income to the venture. That is the case as there will be more products being delivered and the expansive distribution operation is lucrative.

Financial Performance of Dweeble Brothers Ltd

Using the payback period method, it can be deduced that the financial performance of the institution is not viable in terms of deciding to purchase the warehouse in Manchester. That is the case since the payback period will take an approximated 100 years, and this, according to the technique, is a dead investment that is not viable and does not generate profit. Justification of this approach is on the basis that it allows the newly acquired warehouse to be valued in terms of its ability to yield returns. However, activity-based costing helps ascertain the ways through which the products by Dweeble Brothers Ltd are to be sold so that extra costs are covered. The technique is useful as it allows the extra variable costs to be incorporated in the final price of the selected goods. In doing so, it is possible to reach the set profit margins. Thus, Dweeble Brothers Ltd is a profitable venture.

Guajardo, M., and Ronnqvist, M., 2016. A review of cost allocation methods in collaborative transportation. International transactions in operational research, 23(3), pp.371-392. https://doi.org/10.1111/itor.12205 [26 July 2019]

Hacker, J., and Ernst, D., (2017). Investment Appraisal. In Financial Modeling (pp. 343-384). Palgrave Macmillan, London. <https://doi.org/10.1057/978-1-137-42658-1_8. [26 July 2019]

Konstantin, P., and Konstantin, M., (2018). Investment appraisal methods. In Power and energy systems engineering economics (pp. 39-64). Springer, Cham. https://doi.org/10.1007/978-3-319-72383-9_4 [26 July 2019]

Mahal, I. and Hossain, M.A., (2015). Activity-Based Costing (ABC)-An Effective Tool for Better Management. Research Journal of Finance and Accounting, 6(4), pp.66-74. Available from https://www.researchgate.net/profile/Md_Akram_Hossain/publication/309398925_Activity-Based_Costing_ABC_-An_Effective_Tool_for_Better_Management/links/580e70bb08aef766ef10e546.pdf [26 July 2019]