Essay LEG 500 Assignment 3 - 3271 Words

Legal and Ethical Considerations in Marketing, Product Safety, and Intellectual Property Sam Cook Dr. William Stone LEG 500 August 28, 2013 1. Research three to five (3-5) ethical issues relating to marketing and advertising, intellectual property, and regulation of product safety. When looking at PharmaCARE’s relationship with the Colberians, you see that the company’s treatment of the indigenous population is unethical. In terms of intellectual property, the scenario in Assignment 2 highlights the exploitation of the Colberians. While the indigenous population freely shares their information about their cures, the company exploits them by not compensating them for their shared knowledge.†¦show more content†¦Finally, in terms of regulation of product safety, PharmaCARE threw all ethics out the window by working around a number of safety requirements and putting consumers’ lives at risk. The organization used its reputation as a caring, ethical and well-run company to pull the wool over the eyes of many. After reformulating a diabetes drug to treat those suffering from Alzheimer’s disease, PharmaCARE was required to seek FDA approval for distributing the new drug in mass quantities. Instead, it created a subsidiary tha t acted as a compounding pharmacy to distribute the drug directly to consumers on a prescription basis. Although pharmacy compounding, a practice where licensed pharmacists reformulate drugs to create a medication more suitable to treat a patient’s individual need, PharmaCARE, through CompCARE, went on to sell the product in bulk to hospitals, clinics, and doctor offices, an action not permitted by pharmacies. Pharmacy compounding, when done properly, meets a vital public health need when a patient is unable to be treated with a medication approved by the U.S. Food and Drug Administration (FDA), but compounding was never intended to provide unapproved treatment to the masses. This is illegal and unethical. One of the primary roles of the FDA is to regulate prescription drugs to ensure safety of the public, but motivated solely by profit, PharmaCARE took the compound route to avoid theShow MoreRelatedLeg 500 Assignment 3 Ethics and Corporate Responsibility685 Words   |  3 PagesLEG 500 ASSIGNMENT 3 ETHICS AND CORPORATE RESPONSIBILITY To purchase this visit here: http://www.activitymode.com/product/leg-500-assignment-3-ethics-and-corporate-responsibility/ Contact us at: SUPPORT@ACTIVITYMODE.COM LEG 500 ASSIGNMENT 3 ETHICS AND CORPORATE RESPONSIBILITY LEG 500 Assignment 3 - Ethics and Corporate Responsibility in the Workplace and the World Write a six to eight (6-8) page paper in which you: 1. 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Analyze All The Relevant Studies Finance Essay - Free Essay Example

Sample details Pages: 11 Words: 3272 Downloads: 3 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? In the world of certainty many Non-financial firms use hedging strategy to reduce the risk. Risk Management is the strategy tool, which helps in identifying, quantifying, monitoring, and controlling risks. Risk management basically protects the firm from insolvency. Don’t waste time! Our writers will create an original "Analyze All The Relevant Studies Finance Essay" essay for you Create order Many of the Non-financial firms use various types of derivatives like foreign exchange derivative, commodity derivative and Interest rate derivative. Of the risk that many firms try to avoid or manage is interest rate risk. In this I have analyze the information on usage of interest rate derivative by 200 Non-financial firms in 2005-2010 (past 6 years). I found that most of the firms does not use derivative for speculation. In common with several previous studies this paper recognises that different factors might be important for each type of hedging. Therefore, the empirical tests in this paper examine whether sample firms that report they hedge interest rate exposure exhibit characteristics that are consistent with the predictions of hedging theories. The currency and interest rate problems faced by firms today have been exacerbated by the breakdown of the post-war international monetary system established at the Bretton woods conference in 1944. The main features of the Bretton woods system were the relatively fixed exchange rates of individual currencies in terms of the US dollar and convertibility of the dollar into gold for foreign official transactions. The fixed exchange rates were supposed to reduce the risking of international transactions. The fixed exchange rates were supposed to reduce the risking of international transactions thus prompting growth in world trade. With the collapse of fixed parties in 1970s exchange rate were free to fluctuate according to the supply and demand for different foreign currencies. Such an environment led firms to the realisation that a large variation in interest rate could materially reduces net profits reported and could even put them out of business. Hence managing interest rate became one of the important functions of companys strategies policies. The firms which are not significantly changing the interest rate exposure of their operations, their hedging activities should not vary significantly over time. Un less their underlying liability structure is similarly changing over time, evidence that derivatives usage does vary significantly over time is consistent with firms using interest rate derivatives to speculate. An analysis of our empirical literature relates to an accurate assumption that firms that do not use derivative are not hedging. A firm that issues fixed rate debt has the same interest rate exposure and therefore receives the same theoretical benefits of smooth cash flow, as one that issues floating rate debt and swaps it to a fixed rate. If firms are hedging, then the choice of the interest rate exposure of the firms liabilities should be driven by the sensitivity of a firms cash flow to movements in interest rates. By matching the interest rate exposure of the liabilities to that of their assets, firm can reduce the variability of their cash flows. As a result, firms may lower their expected cost of financial distress ( Smith and Stulz (1985))as well as minimise how often they have to raise expensive external capital (Froot, Scharfstein and Stein (1993)). Firms may believe, as suggested in the Harvard Business school case study Liability Management at General Motors (Tufano 1995) that they can reduce their interest cost by actively managing their interest rate exposure as interest rate changes. The use of interest rate derivative has developed significantly over the past few decades. According to, (Guay and khothari (2003)) they argue that derivative positions are generally too small to significantly affect firm value, whereas (Faulkender (2004)) showed that firms in the chemicals industry emerge to use interest rate derivative to speculate rather than hedge. In this we have focused on how Determinants of interest rate derivative influence nonfinancial firm by examining the bond between derivative position and risk exposure. Our data set is consist of detailed information on 150 non- financial firms of United Kingdom for past 6 years from 2006 to 2010. The data allow us to look over the types of derivatives used by the non financial firm to hedge their Interest rate. Purpose of study Interest rate risk signifies one of the key forms of financial risk that bank face in their function as financial intermediaries. Interest rate derivatives are broadly used by Non financial firms. There are two main roles which firms can take: act as a hedger or act as a speculator, but non financial firms basically use derivatives for hedging and very few of them use it speculation. Reasons of implementing interest rate derivatives are obvious but what are the main reasons and determinants which encourage firms to use interest rate derivative. Studies that empirically explore the determinants of interest rate risk have usually used asset-debt maturity as the key factor in explaining firms interest rate exposure. While this topic is quite getting on and researched broadly and there is no clear understanding of determinants. Results of empirical studies oppose each other and there is a need for sorting and fine research. Research Questions Research question helps to split the topic of the dissertation and make it more clear in understanding it easily and aim behind it. It is crucial to build up a set of question which would be based on secondary data and would reveal all undiscovered problems in whole research and define everything clearly. By conducting literature review the lack of studies of the topic was discovered. In this Dissertation after collecting all primary data and secondary data we established to fulfil the following objectives: Analyze all the relevant studies. Determine the main determinants of interest rate by UK non financial firms. In this dissertation we are having both primary and secondary data which is being collected annual reports of the firms and sites from internet respectively. All data and information used are highly reliable. Internet is a basic source of information used for various purposes like education. All risk were minimised by using official reports and sites to get reliable information. Limitation of study The main problem in primary data was while analysing annual reports we encountered the lack of satisfactory information about derivatives usage and notional values of firms and in secondary data the foremost problem which would be encountered by researchers is the lack of suitable exposà © of information concerning Interest rate. We couldnt find the annual reports for some firms because it was not available on internet. Chapter2. LITERATURE REVIEW Risk is basically a probability of loss or the danger of realising a loss or profit bigger/smaller than the one assumed in some specific operation or transaction. Or in short its an exposure to danger. The concept of risk is commonly used in two different meanings. First, there is the definition, where risk is measured in terms of variability of possible outcomes around their averages. Capital pricing model is based upon this statistical definition. (Franks 1986). Secondly, risk can be defined as the probability of the occurrence of unfavourable outcomes. (Weston and Brigham 1981). Preference is given to the former definition since it gives interest and exchange rate exposure rate exposure a resultant positive or negative outcome. Financial risks are of various types which are being explained below: Basic risk Ups and down in interest rate will cause interest bearing liabilities to redetermine the price at a higher rate than that of it was fixed earlier. Capital risk Amount of loss from unrecovered loans will affect the financial institutions value of capital. The capital may include factories, liquid securities and equipment. For example a person invests  £5000 in stock market, he or she faces capital risk of  £5000 invested. Country risk Country risk is collection of risk attached with investing in foreign country. Various economic and political changes in foreign country will affect loan-repayments. These risks include political risk (political changes in debtors country), economic risk (changes in the state of economy), exchange rate risk (risk which includes appreciation and depreciation of a currency) and transfer risk. Default risk In this borrower of loan is not able to pay back the whole amount. Delivery risk The person buying or selling foreign currency will not be able to deliver on maturity. Interest rate risk Decline in net interest income will result from changes in relationship between interest inco me and interest expense. Liquidity risk Liquidity risk is of two types: funding liquidity risk and asset liquidating risk. Funding liquidity risk- unable to meet payment obligation. Asset liquidity risk-situation when a transaction cannot be carried on at dominating market price due to the size of the position. Operational risk It is basically a human risk. It is caused by human error in business operations. Operational risk differs from industry to industry. Industries which have less human interaction bear less operational risk. Commodity Risk Commodity risk rise due to uncertainty of outcome that arises because commodity price changes unpredictable which lowers the producers profit margin and makes budgeting difficult. Futures and options are two financial derivatives used to hedge against commodity price risk. In this dissertation we are looking at Determinants of interest rate and how non financial firm uses various derivative of interest rate for hedging. The approach to interest rate risk management and valuation developed and often used by actuaries assumes a single interest rate. This rate is used to value cash flows and to determine the sensitivity of the value of the cash flow to interest rate changes. Related studies Interest rate risk management has been targeted in some of the previous studies. In the previous study of Hakkarainen et al. (1997). They studied exchange rate and interest rate risk management in major Finnish non financial firms in the spiral of 1994. They approached 100 companies and 84 agreed to take part in the survey. The participants were mailed a questionnaire, which they filled and returned. Hakkarainen et al. analysed that the main target of the non financial firms in their interest rate risk management were to reduce the outcome of the interest rate movements on the firms income, and minimizing net interest rate expenses. Apart from all companies 28% of the company did not perform interest rate ris k management. Interest rate swap (IRS) was the most commonly used hedging instrument, followed by forward rate agreement. The method which is being used in the interest rate risk analysis is duration analysis and average interest rate period. Maximum of the firms assessed having been fairly successful in their interest rate risk management. In the words of Harju and Martikainen (1997) they studied the management of foreign exchange and interest rate risk among small and medium-sized Finnish companies. Their original sample consisted of 64 companies, of which only 23 returned the mailed questionnaire. Their results, as well as their final sample, were quite limited regarding interest rate risk management. Fatemi (2000) The basic factors affecting the approach of a company towards its risk management have not been studied that much. Kasanen et. al. (1997, p46, p 54) recommend that at least firms size and structure, the existence of a written risk management policy and the fir ms attitude towards risk affects the companys risk management. Moreover, they advised (p-220) that the sensitivity of a companys financial profit to a rise in interest rate risk is a main issue that should be taken into consideration. On the other hand, if the goal of financial risk management is to minimise the fluctuations in income (stulz, 1996), the cyclicity of the industry should not be forgotten either. In the words of Shapiro and Titman (1985), debt structure is also a key determinant. Chapter3. The Data and the Methodology 3.1 Research question Research question helps to split the topic of the dissertation and make it more clear in understanding it easily and aim behind it. It is crucial to build up a set of question which would be based on secondary data and would reveal all undiscovered problems in whole research and define everything clearly. By conducting literature review the lack of studies of the topic was discovered. We pay different interest rates every time, thats why we will look over the determinants of interest rate and explains how rates derived. In this Dissertation after collecting all primary data and secondary data we established to fulfil the following objectives: Analyze all the relevant studies. Determine the main determinants of interest rate by UK non financial firms. 3.2 Research Method In this part collecting and analysing the data has been defined. We are screening how usage of derivatives of interest rate affects the United Kingdom firms and what are the v arious determinants of interest rate. The core material of this study is from information of 200 non financial firms for past 6 years, the reason behind not including financial firms in our research is because financial firms use derivatives for both risk management and trading purpose. Whereas, in Non-financial firm they use derivative for only risk management and very few firms uses derivatives for trading purpose. Both financial and non financial firm have different motives for using derivatives In this dissertation we have used quantitative method of research, this method has its own advantages and disadvantages. In our research we have analysed around 150 United Kingdoms Non financial-firms. We have collected annual reports of 150 firms for past 6 years. There are many ways to analyse this research it can be either with empirical analysis with hypothesis testing and so on or descriptive statistics. Advantages for quantitative data are that it helps in broader study, allows having greater objectivity and better accuracy of analysed result. Quantitative data usually provide complete summary of data from the annual report and helps in performing various tests. In order to accomplish this, quantitative research usually involves variables. Using data from the annual reports of the companies which can be analysed and compared with some similar or recent studies. It helps in conducting vast data from the annual report and facilitates comparison over the time. 3.3 Data Collection In this dissertation we have used primary data which is being collected for the first time. The process includes collection of original data for the first time. We have used companys annual report and data stream to collect primary data. All the firms included in the sample have a complete set of past 6 years. This procedure results in total of 150 firms. We have collected the panel data for 150 firms and various variables. To collect information on firms usage of interest rate we started screening for keywords in each firms annual report to check what type of derivative does the firm use for hedging like FX derivatives (FX forward, FX swap and FX option), IR derivatives (IR forward, IR caps, IR collar and IR swaps), commodity derivatives (commodity forward, commodity swaps, commodity futures and commodity option). Firms usage for interest rate derivative includes in these four categories: forwards, swaps, collar and caps. For all firms we tried finding out their outstanding notional values for all derivative usage to pay. We are also having secondary data in our data collection which helped us to conduct broad literature review and research. The main benefit in this type of data was that all the empirical analyses and hypotheses tested are studied and summarised and considering this as a base we took a new approach to the research question. This type of data provided different view on problems by various researchers and collect necessary information on o ur research topic. Secondary data is of two types such as external and internal and so on. In this dissertation we collected information from periodical academic journals, articles, internet and statistical databases. 3.4 Data Sample In this research we are using panel data for 150 UK non financial firms with various variables and it contains firms annual data for past 6 years. To collect the data for research we have used firms annual reports and data stream. Unfortunately, DataStream and firms annual report cannot provide notional value of derivatives like interest rate, foreign exchange rate and commodity derivatives. Then information was structured, combined and organised in one excel document which consisted of 150 UK Non financial firms 3.5 Research variables 3.5.1 Firm size To measure the size of the firm I have a variable called logarithm of assets is a proxy for firms size. It is possible to suggest that participation in a swap market requires from financial institution justification of a transaction. It is proved that a large non-financial firm would have a comparative advantage in transaction support. Block and Gallagher (1986), smith and stulz (1984), greczy, minton, and schrand (1997), john R. Graham, and Daniel A.Rogers (2000), argue that larger firm are more likely to employ managers with specialised information to manage a hedging program employing these instruments. They also argued that small firms do limited hedging because of their set up cost. They note that the size of the firm is positively related to the decision to hedge, stating that larger the firm more chances to hedge as compared to smaller firms. Larger firm are less likely to fail (jagtiani, 1996). The object of research is primary data of non financial firms. Larger non-financial firms can perform economics of scale and such firms are more creditworthy good support for transaction and efficient personnel (Kim and koppenhaver, 1993). Thats the only reason for incl uding this variable. Estimating firms size give us a perfect picture of hedgers and non-hedgers. 3.5.2 Firm Capitalization To measure the firm capital we have variables called equity to assets ratio is employed as a proxy for firms capitalization. Firm is able to bear and take more risk if its capitalization grows at the same point of time need for hedging instruments also get decreased (Kim and koppenhaver, 1993)if the firm is not doing good and is not having enough capital or low capital which discouraged the firm from interest rate swaps because it requires high regulations ( Simons, 1995). So therefore its clear from the previous readings that the firm with large capital are more likely to hedge as compared to those firms which have low capital with them. The amount of capital should be sufficient with the firm to bear its cash flow requirement of the firms billing and collection. Firm should always keep on re-examine its capital annually because of payments of account rec eivables, firm debt, increase in client cost and whenever the firm increases its number of lawyers. 3.5.3 Interest Rate Risk Exposure 3.5.4 Cost of financial Distress Firms with greater variability of cash flows are more likely to find themselves in financial distress, ceteris paribus. Smith and Stulz (1985) suggested that the transaction costs of financial distress can induce firms to hedge financial price risks because this can reduce the probability of incurring costs. . According to their theory, hedging may be particularly more valuable for firms with a higher probability of financial distress. In contrast, the benefits of hedging for financially strong borrowers may be more marginal. We have use the leverage ratio as an indicator of the likelihood of financial distress to measure expected costs of distress. High level of debt doesnt mean that firm has higher probability of distress, important is the ability to service the debt and pay it off at maturity. We have use t he total debt to total asset as measure of the leverage ratio for the year 2005 to 2010. It is important to note that the higher probability of financial distress implies higher expected costs. VARIABLES DEFINITION HEDGER 1= HEDGER ; 0=NON-HEDGER LEV TOTAL DEBT/ TOTAL ASSET SIZE Ln (Total Assets) Empirical Analysis The assumptions in all empirical analysis is that the use of derivatives by the firms is for hedging purpose and the risk firm faces in interest rate is from two sources assets and their debt, they hedge by avoiding market fluctuations because no one can predict the market. Investors are also unsure about the market. Thus, there are many variables that explain different derivative usage for the hedging. Firm faces a

My Belief Free Essays

Jounal What is My Belief? Belief is something inspirational that encourages others to progress and work towards self-improvement. That is especially important for today’s youth and can play an important role in shaping our society. Beliefs can influence a young one’s values, conviction, and attitudes, which will shape the person that one will grow to be. We will write a custom essay sample on My Belief or any similar topic only for you Order Now That has the ability to focus that efforts on others rather than on themselves and inspire others not only by their words, but more so by it actions that move us to do the same. Beliefs help others by offering good examples, by inspiring others realize the endless possibilities to reach our goals, and by moving others to be the best that I can be. In my opinion, parents are the most effective and influential role models in the lives of their children. The youth of society can learn from, and aspire to be like their parents as they are being reared in their childhood years. Fathers and mothers strive to teach their children important values and beliefs as well as demonstrate attitudes and behaviors considered appropriate and beneficial for society’s well-being. Something that has been the strong belief in my life is love of my parents as family. Because my role models are my parents and they possess the quality of good parents. I know they are not perfect, but they carry the virtue and quality of a parent that everyone could wish for. My parents are very responsible, good providers, committed to their duties and responsibilities, loving and determined in pursuing their plans to nurture us with good values and norms so that we will became responsible, well-disciplined, and God-loving. And they also taught us to love others, as we grow old. Now I want to explain several lessons about why the loves of my parents are strong belief to me. First of all, I remember when I was young, my parents made sure that they provided us with what we needed and they do their best, even in the midst of hardships. Especially, my dad has always taught me that I have to work my hardest for whatever I want in life. My dad had me with his wife, my mother, when he was twenty-five. My parents had very little money to raise me on their own, so my dad went to work right away to help support his family. He gave up all his freedom and the fun on a young’s life to help support his family. My dad has been working at least two jobs at a time since the age of twenty-five. They didn’t stop or even pause in fulfilling their duties and responsibilities as parents they always seek a solution or find ways to keep our life better and meaningful. Second, my parents always show and teach us the good values so that we can past it on to the next generation. They are always there to support us in our endeavor and in pursuing our dreams. They are very supportive especially when I need to decide on my own, they are always there on my side, not to be hindered in my plans but instead to give advice and support that I needed most. At a point when I was failing in a subject of 12th standard, third, as I was not very good in academics. My parent then had a long conversation with me about life; they told me that it would be smarter if I will study hard because it would be easier for me to get a job and earn more money, and that this was the best way I could help the family. They always tell us about what they went through because of not having the chance to concentrate on studies at all and â€Å"Only you can change your life. No one can do it for you†. By telling us this, they want us to take advantage of what we have to have a better future. But what got my parents to where they is today was not from being lazy by no means but working hard and driving himself to become something better than what they was and to achieve them dreams. My parents don’t only give advice about having a good future but also about morals. They always tell us that if I order for people to respect us, we have to respect them at all times. To him having good morals is really important because not only does it make us do the right thing but also they will help us succeed in life. Therefore, I should thank God for met my parents. Fourth, my parents are a real understanding person. they gives me the best advice I can get and that is why I think my parents have given me the best emotional support I can receive. My parents have also been the best role model for me. They have thought me not to worry about what others might think or say about me, as long as I’m doing the right thing. They have shown me that being humble and warm hearted could win more love then being filled with superficial materials. They also teach me to stand up for what I believe in no matter what the case is. They have though me that no mountain is high enough. Those are a few reasons why they are an excellent role model in my life. In conclusion, here are some of the reasons on how my parents have impacted my life and how the love made an impact in society too. My parents are my role model because I want to be like them, the way they nurtured me. And my parents have also taught me that to be a person in the future, it will give other the hope and desire by saying it ‘I can do it so you can’, my parents make sure that they are on my side in every step of the way of our life. To me the love of my parents are my strongest beliefs because I want to be like them, the way they nurtured us. Furthermore, they always tell me that if I order for people to respect us we have to respect them at all times. This saying always makes me strong. How to cite My Belief, Essay examples

Accounts for Managers Competitive Economic Environment

Question: Describe about the Accounts for Managers for Competitive Economic Environment. Answer: Problem 1(i) Most of the companies operating in the competitive economic environment use extensive strategies to increase their competitive advantage. One such process is the reduction in the production rate in the various manufacturing process. Therefore, organizations use faster processes in the manufacturing areas. This method can be implemented in the engineering process by reducing the wait times, operator attention, eliminating the manual actions by automation. The transition time can be controlled by profile rate of change control. The processing time can also be reduced using by override control. The processing time is also reduced through better detection at the end. The workflow in accordance to engineering needs to be realized along with tracking the reports to evaluate the customer and financial satisfaction. A balanced scorecard based on the information gathered is necessary to be created so that the process can be faster (Shen, and Liao, 2013). Therefore, an efficient monitoring of the process can result to reduction in the production rate. The administration part of an organization can be increased through quality and effectiveness of the communication, efficiency and quality of the information retrieval and storage and an effective process control. A good relationship between the administration and the other departments will result to a faster process thus increasing the market potential for an organization. Problem 1 (ii) An improvement in the quality of the production rate is essential for the development of an organization. The benefits of improved quality in a organization are as follows: Customer Satisfaction: The improvement in the quality will result to an improved product and services and therefore will result to a better satisfaction among the consumers as they can fulfill their desire by consuming the product. The increase in the satisfaction level will help to generate customer loyalty towards the organization thereby holding a significant market share. Profit: Improvement in the quality will lead to higher sales for the firm and thus will lead to higher revenue in the market. The main motive of every organization is to earn profit from the market and thus, improving the quality is essential (Yan,and Li, 2013). Goodwill: The goodwill of a firm will increase once the sales of the product offered by the firm increases. The firm will therefore establish a place in the market because of its increased goodwill and the customers will be attracted towards purchasing their product. Efficiency: The efficiency and the productivity of the organization will increase drastically once the quality level develops thereby increasing the productivity and decreasing the level of errors in the manufacturing unit (Davenport, 2013). Employee Moral: The moral of the employees increases once there is efficient productivity in the organization. Efficient productivity will bring in a good working environment within the organization thus bring in harmony and peace. A good working environment will motivate the employees to give out their best thereby increasing the competitive nature of the firm. Helpful in Decision-Making: The improvement in the production rate will help in detecting the errors with respect to the production process and thus, the management can make effective decisions with respect to the production thereby implementing new and better strategies into the business. Problem 1(iii) Production process are instrumental for any organization to scale up efficiency of the employees and manufacturing function as a whole but increasing the rate of process may create problems and can decrease operations of the production. Therefore, the potential problems arising out of increasing the speed of the process are as follows: More focus on the Process rather than the people: In order to standardize and sanitize the level of work in an organization, the management of a firm tries to make every work professional rather than personal. The management looks after the processes rather than the employees to solve any problems and it always does not work as there lacks the vision and inspiration. Overdependence on meetings: Collaborative work process does not require too many meetings for any sort of action or decision. Meetings will lead to ineffectiveness of the employees and the workers as they are always in meetings rather than working. Lack of clear Vision: It is important for organizations to maintain a clear vision, mission and strategies. The companies having a proper vision will reduce the level of error in the production. But, by increasing the production process, the supervision of errors reduces (Gargani, and Strong, 2014). Overstress on the machines: With the increase in the production process, the machineries get overstressed thereby supervision over the machines are necessary to maintain the quality of the product. Problem 2: Steve Smiths observation reveals that decrease in inventory results to increase in the sales for the organization but XYZ does not recognize the fact but only remunerates the manager whose factory has not increased the sales but has increased the profit through any other means. The reduction in the inventory is a reduction in stock and therefore loss of wastage and so the factory in Adelaide has actually increased sales though net profit has not been created. The factory in Brisbane is having a net profit but the inventory stock is low so the sale is less. Therefore, it is seen that there exists a chance of stock blockage leading to wastage in the future. the net profit can be increased by rising the price of the product thereby geberating profit but not increasing profit. But, Adelaide on the other hand increases sales by keeping the price low thus not gaining profit. Thus, it is necessary that both the managers get a commission as one is gaining sales but the other is providing pro fit. There exist a lot of conflicts when any organization announces its commission over the net profits as it is seen that net profit of a firm does not always indicate the competitive edge of a firm. The position of a firm in the market is indicated from its sales and market share along with net profit. Thus, net profit cannot be the only factor to determine the bonus of managers (Steven, 2014). The net profit can be manipulated by changing the figures in the income statement and the cash flows but the position of a firm can only be determined through how much sales the firm produces. If net profit becomes the only basis of bonus payment, then all the managers will try to increase net profit without looking at the firms strategies and thus will not focus on increasing the sales as much as profit. Problem 3 (i) The material variance and labor variances are major factors, which are necessary for any organization to determine its production process and profit margin. According to this problem, Dream Housing Ltd manufactures four styles of homes using standard costing method. It is also found that the material variances are favorable with respect to labor variances, which is unfavorable. The labor efficiency variance indicates measures the capability of labor to perform according to the expectation. This variance is useful to determine the production process areas that use more labor than expected. An unfavorable variance shows that the efficiency of labor has decreased due to inadequate work instructions, in equilibrium with the standard mix of employees and the actual mix of employees present. Such an incident also takes place due to inadequate training as the training was not according to the actual level. Labor variance is useful in realizing the actual amount of time required for manufacturing a product and therefore a favorable labor variance would indicate efficient level of production along with quality products (Fisher, and Krumwiede, 2015). Material variance on the other hand shows the actual amount of material used and the standard amount predicted for use. It depends upon the scrap amount of material, material quality, spoilage and the transportation used for transfer. A favorable material variance indicates that the amount of spoilage and wastage of the materials along with less scrap of the materials. The actual amount of used material is closer to the expected amount thus, lowering the cost of materials. Problem 3 (ii) The analysis of the production costs and the variables included in the manufacturing process of an organization is helpful in realizing the breakeven point of the organization. The breakeven analysis tries to evaluate the relationship between the breakeven volume and the major variances involved in the manufacturing process namely the labor and material variance. The analysis therefore helps the management to find out the ways to increase the favorable condition of labor and measures which can be taken to motivate the labors to stay in the organization and provide their optimum best for the organization (Isberg, and Pitta, 2013). The material variance is favorable in the desired company and thus measures to retain and improve the use of material and reduction in the waste and spoilage of materials. Problem 4 (i) Particulars A B Cost/Unit-A Cost/Unit-B Direct materials 260,000 360,000 13 12 Direct labor 40,000 60,000 2 2 Variable overhead 60,000 75,000 3 2.5 Variable selling and administrative expense 60,000 60,000 3 2 Total variable expenses 420,000 555,000 21 18.5 Problem 4 (ii) The reason behind budget A having high costs and low forecast of sales are due to the selling price estimated for the product. If the selling price is closer to the cost of goods sold then the price then the profit will be lower. The quality of the product along with the production technique also takes into account. Budget A uses a bottom up approach, which uses more complex method to analyze the original system and the sub-systems to come up to a new system. Budget A uses more amount of variable and fixed costs to increase sales and thus the cost become higher (DRURY, 2013). Problem 4 (iii) Budget B has more sales than the costs due to the fact that it uses more extensive technique and results to higher sales than the costs of goods sold. This has only been possible due to the fact that this budget uses the method of implementing the lowest cost possible to increase sales. The top down approach is a clear indication of command and control an therefore it depicts the clear and consistent goals along with the knowledge about the real reasons of cause and effect. The level of authority is also well explained in this process and therefore the rules decided in the top level is well aligned with the rules in the bottom level of management. Therefore, the top down analysis is the appropriate approach for planning and implementing the best method thereby reducing the costs and increasing the revenue (Shepherd, 2015). Problem 4 (iv) The two groups A and B can take the help of each other and organize plans and process thereby using the positive aspects of each group to come up with an idea to create a new budget will be the most efficient budget for implementation in the organization. The idea of merging the positive traits of budget A and B is vital to introduce a new plan efficient and effective for the increase in the market share, profit and sales for the organization. Consensus budgeting has a better prediction than individual forecasts and there are certain differences among the individual and the consensus preparation depending the period of accounting. Thus, consensus budgeting is useful in creating an appropriate strategic leader and team that is useful for effective decision making. Such a budget helps to create a long term vision of the firm thereby creating an efficient vision and mission plan to increase the competitive advantage in the organization. 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