ICRS-2B

International Cost Reporting Format Series-2B
Cost and Management Accounting for Owners.(Trading of goods and services.)
Owners of a business are those who have invested their capital into the business and who
are expecting Returns from the opportunity at a marginally higher rate at the least to stay
invested in the business.
Now the owners can be categorized as those who are loyal to the business (Family
Pattern) those who are loyal to yield (Share holders) and those who swap constantly their
capital with risks (short to very short term-Traders in ownership).
1.Let us first concern ourselves with Family business these type owners are creative
owners because they not only take risk of capital but also use their intellectual potential
to stay put in the business of doing business .This type of owners are interested more in
business sustenance and growth.Though they may try to infuse professional management
in the business they are close overseers and have the flexibility to keep a watch on the
management and in eventuality to decide on what the management has to do.
Such type of business are largely found in Proprietory concerns,partnerships,private
limited companies and even in a few business conglomerates,where demutualisation
between ownership and management is not to the optimum level.
Such owner managers do need data for decision making that gives optimum yield and
ensures growth and sustenance.Primarily Income expenditure statements do not reflect
the data thirsty owners of this category.This type of owners handle diversified business
activity.
A Cost and management accountant is expected to give necessary inputs to the owner
managers in real time and such information should be useful indecision making and guide
strategies to its logical end.
I would like to formatise some of the decision making situations and call for the Cost and
management accountants to certify these statements .
1.Owner manager as a trader:
The situation demands that the trader has a track on his :
a. Stock of physical goods.
b. Cash management.
c. Administrative costs.
D.Selling and distribution cost.
e. Procurement cost.
f. Carrying costs.
g. Unit cost of purchase and sale.
h. Cost per unit of each products upto the point of sale.
Cost of
carrying
the
productthat
is
recovery
depletion
over a
period.
Income
per unit
of the
products
available
and
traded.
Product
turnaround
details.(The
time it takes to
a product to exit
from shelf).
Qty of
product
available
for sale.
Unit
cost of
purchase
product
wise.
Administrative
cost Allocable
to these
product for a
period
irrespective of
sale.
Selling and
distribution
cost
allocable to
this
product for
a period
irrespective
of sale.
Certified that the products available for trade are not unnecessarily loaded with overheads
and losses arising out of non-moving depletion of other products and that the product will
sustain in the near term the profits of the business.The Income Mix from Various
Products traded is at the optimum.
Practicing Cost accountants.
Owner manager as a service provider:
This stakeholder needs to have a track of cost of service against recovery.Often recovery
is bound by external factors and are fixed per ubit of service rendered.Here the
stakeholder has to kennly keep track of where he spends the most.
1.Service self rendered-intellectual or vertically integrated(involving transfer pricing).
2.Service rendered as a middlemen.
3.Where price is influenced or where there is liberty to fix price.
a. Cost of providing service- split to point of rendering.
b.Recovery cost.
c.Differential pricing with and without value-addition .
,
Service-wise
Cost of
Procurement.
Recovery per
unit of service.
Price
differential
among the
customers
Transfer pricing
details
Cost of
Administration
selling and
distribution on
the service
provided.
Certified that the service available for trade are not unnecessarily loaded with
overheads and losses the sustainability of service in the near term is good.
Practicing Cost accountants.
Family run business are generally emotionally charged business and exit route is often
the final option and turnaround is always in the mind of such investor managers.So
sufficient and objective cost data is utmost vital for the sustenance of business.
Normally Traders incur expenditures to see through a point of sale transaction.There is no
value addition but expenses are incurred to earn value.Now basically A trader survives on
1.commission-2.dealers margin-3.hedging-and 4. volume of transaction with low to very
low margins. Cost incurred by a dealer normally includes Inventory Cost, transportation
cost, Interest cost, Administrative selling and distribution costs, Storage cost, Cost of
depletion due to long carry.As a cost accountant one has to basically identify cost and
arrange to collect and collate data for meaningful presentation.Trader often switches
trades and in the process may incur losses while switching which should be monitored.
The decision often a trader has to take is as follows:
1.Whether to Stock a product.
2.Price flexibility-To retain for a better bargain- vs- to move it out.
3.To assess the relative profitability of products traded in order to optimize.
4.To exploit on the competitive opportunities of similar product range.
Owner manager may be a producer,manufacturer or even primary service provider in
which case the earlier formats mentioned can be amended to include production details.
R.Veeraraghavan.AICWA.