Running head: ACCOUNTING Case Study – Cost Analyze method & Company Report 1

Accounting Case Study – Cost Analyze Method & Company Report

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Institution
Running head: ACCOUNTING Case Study – Cost Analyze method & Company Report 2

Accounting Case Study – Cost Analyze Method & Company Report

a. Company Background

Woolworths Group is a largest retail company that deals with sales of Food & drinks,

General Merchandise, Liquid, Petrol, Multi-option Retailing and retail services. Woolworths

Group was established in Australia in 1924 and currently has got over 3,500 stores in the entire

New Zealand as well as Australia. Moreover, the Woolworths Group has around 200,000

employees (Spillan, & Ling, 2015, January). Additionally, the company is also managing some

of the most trusted and recognized Australian’s brands that encompass BWS, Cellar masters,

Caltex Woolworths, ALH, Langtons, Dan Murphy’s as well as Countdown (Jie, Parton, & Chan,

2015). Furthermore, the company through their common strategic goals as well as operation

globally has been able to fully facilitate both commercial as well as support utilities of the

Australia societies.

b. Cost Information Analysis

Notably, cost is a very vital component in every organization and thus it requires

thorough analysis with regards to cost allocated to various division within the company (Jie,

Parton, & Chan, 2015). The amount of costs that were allocated to employees from the estimated

budget was 20% while in the audited financial reports of the company indicates favorable

outcomes of around 5% FY2017 (Woolworthsgroup’s annual reports, 2017). Moreover, the

reflective of the group reports shows that the STI outcomes was estimated to be 109.8% whereas

the actual performance reports of the Woolworths Group as stated in the audited reports shows

that there was an upsurge of 4.5% FY2017 (Woolworthsgroup’s annual reports, 2017).

Additionally, the cost of doing business by Woolworths Group was established to have

augmented by 101bps. Nonetheless, the net financial costs decreased by 21.2% during the
Running head: ACCOUNTING Case Study – Cost Analyze method & Company Report 3

FY2016 and FY2017 due to the fact that the average rates of debts and effective borrowings

significantly declined (Nas, 2016). It is also identified that the operation cost of continuing

operations increased by 3.7% during the FY2016/17 (Woolworthsgroup’s annual reports, 2016).

Some of the methods that were used in measuring performance include making an

analysis of the sensitivity of changes in primary assumptions balanced scorecard, high-low

methods, cost-benefits analysis, cost allocation, cost effectiveness and efficiency evaluation in

order to allocate cost to the respective elements in the company (Jie, Parton, & Chan, 2015).

Sensitivity analysis shows that there was a significant decrease in the percentage change of post-

tax discount rate by 45% or a 20% declined in the estimated values of the Woolworths Group.

Considerably, cost apportionment would facilitate segment reporting that would indicate whether

they are efficiency and effective in their operations (Jie, Parton, & Chan, 2015). It is imperative

to indicate that divisions are the profit centers thus a company would evaluate their performance

as well as those of their divisions. Substantially, Woolworths Group ought to envisage and

allocate innumerable cost elements that emanate from stores, as well as operations costs of

trading across New Zealand and Australia so as to be able to provide a consolidation of the

overall performance of the company (Woolworthsgroup’s annual reports, 2016). This would

greatly aid in determination of the position of the company in terms of performance in both

locally as well as globally market place (Spillan, & Ling, 2015, January). It is therefore

necessary that management of the Woolworths Group ensures that they monitor the performance

of each of their division in order to determine those which are not profitable in the organization

hence could be closed down.

c. Cost Reduction and Value Added

Running head: ACCOUNTING Case Study – Cost Analyze method & Company Report 4

Numerous costs that greatly incurred by Woolworths Group include costs concerning to

storage of products in segments operating oversees such as New Australia (Nas, 2016). All

organization obligate to reducing their operation costs that may not be relevance to their

operations. Managers examine each cost element attributable to the Woolworths Group’s

operations with regards to different divisions in order to ascertain those unprofitable segments to

the company (Cardoș, 2014). Therefore, Woolworths Group would consider eliminating those

segments group so as they could chance of investing more on those profitable once (Jie, Parton,

& Chan, 2015). Considerably, Woolworths Group should established their cost of purchasing

materials and other operating costs in order to get institute effective ways into which costs could

be significantly be reduced to permit generation of more revenues to the Woolworths Group

(Woolworthsgroup’s annual reports, 2017).

d. Forecasts and Budgets

Considerably, the top managers of the Woolworths Group are tasked with preparation of

budgets pertaining to each segment group (Spillan, & Ling, 2015, January). Through the use of

forecast techniques that include percentage sales forecasts and financial statements analysis are

applied in making estimates of the Woolworths Group. From the 2017 annual report of

Woolworths Group, it is indicated that during the FY2016, the PPE during the fiscal was 123.8

but during the (Woolworthsgroup’s annual reports, 2017), the reports shows that the PPE fell to

109.1%. From the Woolworths Group 2017 ammual reports shows that, Martin Smith, the

managing directors to drinks had forecested a renumeration of of 1,130 but they manage to

achieved actual renumeration of 670 making a discrepancies of 369 from the actual set plan

(Woolworthsgroup’s annual reports, 2017). Additionally, Colin Storrie, who is the group

portfolio director had projected an increase inrenumeration during the FY2017 from 1782 at the
Running head: ACCOUNTING Case Study – Cost Analyze method & Company Report 5

beginning of the fiscal year to 1893 at the end of the period. Furthermore, the intangible assets

remain at (626.30) in both FY2016 as well as FY2017 (Rice, Martin, & Gurd, 2015).

With regards to other budgets such as those which require involvement of participants or

group budgeting, the top management of Woolworths Group is regularly involved during budget

formulation where they provide their consideration for segment division (Jie, Parton, & Chan,

2015). Moreover, budget forecast and estimates would facilitate Woolworths Group to assess

performances of various segments as well as managers thus being able to rewards performing

managers and also their best performing divisions (Woolworthsgroup’s annual reports, 2017). It

is also established that budget and forecast greatly contemplate to increasing effectiveness and

efficiency to the overall performance of the Woolworths Group due to the fact that the costs and

revenues are systematically monitored by the management (Spillan, & Ling, 2015, January).

Furthermore, budget forecast and estimates would aid in establishing the various operational

systems which may not be efficient and therefore enabling managers to take corrective actions so

as to ensure that all the systems are effective and efficient (Jie, Parton, & Chan, 2015).

e. Monitor Performance

From the 2017 annual reports of Woolworths Group, it is indicated that there was an

increase in the sales of foods in New Zealand of about 2.1 due to huge sales of gift cards during

the Easter making the overall sale of the company for the year to increase to about 2.8%

(Woolworthsgroup’s annual reports, 2017). Fundamentally, top managers are indebted to

monitor performance of the organization during a particular period in order to make sure that the

estimates projected in the budget is achieved by all segments of the Woolworths Group (Rice,

Martin, & Gurd, 2015). It should also be noted that performance monitoring requires the use of

various tools which include balance scorecard, variance analysis, return on assets, return on
Running head: ACCOUNTING Case Study – Cost Analyze method & Company Report 6

equity amongst others (Spillan, & Ling, 2015, January). Performance of Woolworths Group

would be measured through evaluating the overall growth of the company in terms of the

workers, employees, profits and loss, market share and the number of customers in the market.

f. Conclusion

From the above analysis, it is clear that Woolworths Group consider costs of operation to remain

imperative in their business operations (Rice, Martin, & Gurd, 2015). Furthermore, the method

through which are used in analyzing cost in the company include high-low method, sensitivity

analysis, balanced scorecard, high-low methods, cost-benefits analysis, cost allocation, cost

effectiveness and efficiency evaluation in the operation of the company (Cardoș, 2014).

Additionally, Woolworths Group should contemplate to ensuring that their costs of operation

should be monitored in order to substantially eliminate any variance that would results from their

operations.
Running head: ACCOUNTING Case Study – Cost Analyze method & Company Report 7

References

Jie, F., Parton, K. and Chan, C., 2015. Australian beef supply chain integration: case studies of

the two largest Australian supermarkets. International Journal of Supply Chain and

Operations Resilience, 1(2), pp.121-138.

Woolworthsgroup’s annual reports (2016).

https://www.woolworthsgroup.com.au/page/investors/our-performance/financial-

performance/.

Woolworthsgroup’s annual reports (2017).

https://www.woolworthsgroup.com.au/page/investors/our-performance/financial-

performance/.

Nas, T.F., 2016. Cost-benefit analysis: Theory and application. Lexington Books.

Cardoș, I.R., 2014. New Trends in Budgeting - A Literature Review. SEA: Practical Application

of Science, 2(2).

Rice, J., Martin, N. and Gurd, B., 2015. Strategic Planning, Budget Monitoring and Growth

Optimism: Evidence from Australian SMEs.

Spillan, J.E. and Ling, H.G., 2015, January. Woolworths: An Adizes Corporate Lifecycle

Perspective. In Business History Conference. Business and Economic History On-line:

Papers Presented at the BHC Annual Meeting (Vol. 13, p. 1). Business History

Conference.