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Hi, need to submit a 3500 words essay on the topic Management of Discretionary Costs.If one is starting with MRP f the product, care should be taken that prices do not include sales tax, and are typic
Hi, need to submit a 3500 words essay on the topic Management of Discretionary Costs.
If one is starting with MRP f the product, care should be taken that prices do not include sales tax, and are typically net f distribution expenses. In case f an FMCG product (Fast Moving Consumer Goods) unit realization f the company, which will appear as gross sales will be typically 65% f MRP price which the consumer pays.
Many a times, companies give their volume figures under generic product category name. The volume figures include products f different sizes, types and prices. The analyst has to take care f expected changes in product mix while forecasting.
Keep a broad picture f the competitive scenario and its impact on pricing. Also, understand key drivers f pricing, like for petrochemicals, India is a price taker, so global price trends have a bigger influence in determining Indian price trends.
Material Costs
Estimate material costs, which in most cases is the most significant cost item.
Key variables
- Raw material prices
- Production efficiency, conversion norms and yield improvement have a significant bearing on cost estimation.
The analyst has to understand the basic manufacturing process and get a fix on input output norms.
Labour Costs
For estimating labour costs, one can start with previous year's labour cost and adjust it for the following factors.
Key variables
- Additions/ adjustments for additional capacity/ new plant,
- Reduction for retrenchment/ sale f a unit etc,
- Salary increases on settlements with union etc. Many companies plan for settlement hikes and make provisions even if negotiations are delayed,
- Bonus, profit linked incentives,
- Salary increases.
