What are Scrap, Defectives and Spoilage?

What are Scrap, Defectives and Spoilage?

Scrap: -Scrap is the residual outcome from a production process which generally has disposable value.

Defectives: -Defectives are part of a production process. Defectives can be rectified by occurring some additional costs. Defective works occurs because of many reasons like inefficiency of workers, poor quality of raw materials, production planning problems etc. Defectives products can be rectified by using additional material, labor and overhead and can be sold as good output.

Spoilage: -Spoilage occurs when goods are damaged in a way that there is no chance for rectification. Spoilage is disposed off without any further rectification.

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Job Responsibilities (JR) of a Sales Executive.

Job Description / Responsibility

· Achieving total level value & volume target and ensuring optimum products distribution & visibility

· Aggressively drive for achieving monthly, quarterly and yearly sales targets

· Develop route level sales plans

· Performing primary sales order management and verifying secondary sales

· Monitoring distributors' stock, ensuring timely payment from distributors and receiving claim adjustment

· Ensuring coverage and availability as per the norms & resolving problem at immediate subordinate & out-level

• Responsible for achieving sales target of all hub under his territory;
• Collecting market feedback and competition information
• Daily update & reporting to his supervisor;
• To plan and carry out all sales and marketing activities on assigned category.
• Must be target oriented, able to fulfill responsibilities.
• Market visit, client hunt, creating market opportunity by generating and qualifying potential leads in advance.
• Develop new clients and maintain good relationship with existing clients.
• Source and develop client referrals.
• Prepare sales action plans and strategies.
• Schedule sales activity.
• Develop and maintain a customer database.
• Develop and maintain sales and promotional materials.
• Plan and conduct direct marketing activities.
• Make sales calls to new and existing clients.
• Develop and make presentations of company products and services to current and potential clients.
• Negotiate with clients.
• Develop sales proposals.
• Prepare and present sales contracts.
• Maintain sales activity records and prepare sales reports.
• Respond to sales inquiries and concerns by phone, electronically or in person.
• Ensure customer service satisfaction and good client relationships.
• Follow up on sales activity.
• Perform quality checks on product and service delivered.
• Participate in sales events.
• Monitor competitors, market conditions and product development.
• Monitor and report on sales activities and follow up for management.

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How to segregate semi-variable cost.

Semi-variable costs:- Semi-variable costs are mixed costs, a portion is fixed and another portion is variable. For example Telephone Expenses, Electricity bill, Service department wages e.t.c

We can segregate semi-variable costs in the following way.

Per unit variable cost = Difference in total costs / Difference in total units

Amount of variable costs = Per unit variable cost * No.of units

Amount of Fixed Costs = Total Costs - Amount of variable costs

Let us consider the following example, it costs tk.84,000 to produce 14,000 units of product X and tk.96,000 to produce 20,000 units. Now we can segregate the cost by applying the above formulas.

Per unit variable cost = (96,000 - 84,000) / (20,000 - 14,000)
                               = 12,000 / 6,000
                               = 2

Amount of variable costs = 2 * 14,000
                                      = 28,000

Amount of Fixed Costs = Total Costs - Amount of variable costs
                                    = 84,000 - 28,000
                                    = 56,000

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What is relevant cost

Relevant cost: Relevant costs are the costs that differ between alternatives. Sunk costs and future costs that will not differ between alternatives are irrelevant costs.

Relevant costs are used to make the following decisions

1. Make or Buy Decisions: - Decisions about producing a product in-house or purchase it from outside suppliers.  Fixed costs of production are irrelevant here, only variable costs of manufacturing should be considered for making such decisions.

2. Accepting or Rejecting Special Orders: - Decisions about whether receiving a special order from customers or not. For making such decisions only the costs associated with carrying the special order should be considered and if it is considered that current sales will not be affected by choosing the special order then the company may accept that order.

3. Adding or Dropping a Product Line: - Decisions about adding a new product line or dropping a losing unit. If a unit is making loss then it does not mean that the unit should be dropped. If the contributions from the loosing unit can contribute to the allocated fixed costs then the unit should not be dropped.

4. Utilization of constraint resources: - Resources are always limited so we need to use resources in a way that will generate optimum gain. For example ABC Company produces two products, Product X and Y. Product X require 1 machine hour per unit and product Y requires 1.5 machine hours per unit. Per machine hour product X contributes tk.2, Product Y contributes tk.3. ABC Company has limited machine hours so it will pay first preference for utilization of machine hours to product Y because it contributes more than Product X per machine hour.

5. Decisions about selling or further processing: - In some industries, a number of end products are produced from a single raw material input. Two or more products produced from a common input are called joint products. The point where each joint product is recognized as separate product is called the split off point. Some products need further processing after the split off point. If incremental revenue is greater than the incremental costs of further processing then we will do further processing.

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What is accrued interest

Accrued interest: - Accrued interest is the unpaid interest which is accumulated on a loan or security. For example XYZ company has a loan of BDT 1,00,000 @ 10% payable in monthly equal installment. The interest of January month will be the accrued interest for February if it is not paid in January.

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What is Appreciation

Appreciation: Appreciation means an increase in value of an asset. It is just like opposite of depreciation.

For example, If a machine purchased at BDT100 before 2 years ago and now it has a market price of BDT300 then there is an appreciation in value of that machine. The machine is appreciated by BDT100.

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What is margin of safety.

Margin of Safety:- Margin of safety is the excess amount of sale over the Break Even Sales. it is simply the difference between Actual sales and Break Even Sales.

Margin of Safety = Actual Sales - Break Even Sales

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What is Net Worth

Net Worth:- Net Worth means what is owned by the company. It is also called Net Wealth. By calculating Net Worth/Net Wealth we have an idea about a company's actual financial position. It is calculated by deducting external liabilities from total assets. It shows what portion of a company's assets is financed by owners fund. Simply it is the owners or stockholders Equity.

                       NET WORTH = TOTAL ASSETS - TOTAL LIABILITIES

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