Manufacturing Company Essay

Johnson & Johnson is an American multinational company that was founded in Brunswick, New Jersey in 1886 by American entrepreneurs Robert Wood Johnson and Edward Mead Johnson. It manufactures pharmaceuticals, medical devices and consumer products. Johnson and Johnson and its subsidiaries have operations in over 60 countries and sell their products in over 175 countries. They are one of the world’s largest manufacturer of health care products and the largest developer and manufacturer of medical treatment and diagnostic devices.

It is recognized for its corporate repute, strong customer base, brand loyalty and brand image. Johnson & Johnson has an excellent research and development base, which is its strength for surviving in the pharmaceutical sector. Johnson & Johnson has successfully employed a strategy of differentiation that helps it distinguish itself from its competitors (Johnson & Johnson Services, n. d. ). The subject of managing organizational communication encompasses both formal and informal communications throughout an organization, including communications to employees and with or from employees to upper management.

This discussion reviews the basics of effective cost allocation, activity-based accounting and management, inventory costing methods, and methods for measuring results within the Johnson & Johnson. Communication is a vital management component to any organization. Whether the purpose is to merely update employees on new policies, to prepare for a weather disaster, to ensure safety throughout the organization or to listen to the attitudes of employees, effective communication is an integral issue in effective management.

In order to be successful, Johnson & Johnson would need comprehensive policies and strategies for communicating with its constituencies: employees, stakeholders and the community at large. Developing a communication strategy begins with linking communication with the strategic plan, including the organization’s mission, vision and values; its strategic goals and objectives; and its employment brand. A strong training component not only will equip individual leaders to communicate effectively with their teams and other organizational leaders, but also will help them understand the appropriate communication channels and protocols.

In any communication strategy, identifying audience issues is a key task in ensuring effectiveness. The audience may include all of those who have some influence upon or are influenced by the information being shared. For most effective communication, audience size also must be appropriate given the information being shared, as well as the interaction that should be permitted. Activity-based costing, (ABC), by definition is an “approach to costing that focuses on individual activities as the fundamental cost objects.

It uses the costs of these activities as the basis for assigning costs to other cost objects such as products or services” (Horngren, Foster, Datar, Rajan & Ittner, 2009, pg. 144). ABC recognizes the causal relationship of cost drivers to activities. Specifically, resources are assigned to activities based upon consumption rates and activities are assigned to cost objects, again based on consumption. Activity-based costing can help solve the problems and increase value to corporation through better controls and asset utilization.

In addition, ABC is most useful when this product make cost diver demands in resources depends on differences in batch size or complexity. ABC can provide the accuracy data with management the products cost information, and help to improve cost management level. Activity-based management, (ABM), by definition is a “method of management decision-making that uses ABC information to improve customer satisfaction and profitability” (Horngren et al. , 2009, pg. 152).

Johnson & Johnson can use activity based management as a tool to support this process based view of the organization by providing information and data needed to plan, control and direct activities of a business to improve processes and eliminate waste. There are several uses of ABM that Johnson & Johnson can implement, if not already in place, to achieve a profitable outcome. Attribute analysis, which classifies and combines cost and performance data into manageable and controllable clusters.

Strategic analysis, which explores various ways a company can create and sustain a competitive advantage in the market place. It emphasizes future opportunities and challenges, using a combination of both physical and financial measures to explore the impact of alternative strategic positions. Benchmarking, which identifies an activity as the standard and is used to assist managers in identifying a process or technique to increase the effectiveness or efficiency of an activity. Operational analysis, which seeks to identify, measure and improve current performance of key processes and operations within a firm.

Profitability / pricing analysis, which assists a company in analyzing the costs and benefits of products and processes in both the as-is and post-improvement to-be scenarios (Horngren et al. , 2009). The two most common methods of inventory costing are Last-in-first-out (LIFO), and first-in-first-out (FIFO), choosing the correct method of inventory accounting could be detrimental to the income statement and the statement of cash flow, and also it would affect the balance sheet of the company. For Johnson & Johnson, it is imperative that they track their inventories and cost of goods sold.

Both of these methods of accounting are a way they could do this. LIFO and FIFO are methods used for accounting for the inventory. FIFO is a method that companies use whose inventories are like food or an item that could turn bad if not sold quickly. A company using FIFO normally looks better to investors then they are. It is sort of a false advertisement of higher profit then it should be reflecting. The good part of a FIFO method is that it reflects new purchases and with that would show accurate replacement costs.

LIFO is a method that companies would use if their inventories were not perishable or had a wear out date. If and when cost of the items rise, the higher, priced items are sold first. LIFO normally lowers a company’s tax liability and, as well as there net income. The bad part of this method is that the companies do not approximate the replacement cost of their times sold to well. This would make it a challenge on the budget in most cases. Between the two inventory costing methods, Johnson & Johnson would yield a better result from LIFO (Peavler, n. d. ).

Some things cost accounting assists with is measuring performance, determining costs and prices for goods and services, reducing costs, managing costs, and analyzing the benefits of an activity or process. “Companies use budget to plan for their future business goals and the required financing to achieve those goals” (Mcintosh, n. d. , para. 1). A budget would allow Johnson & Johnson to plan its expected revenues and expenses for the budget period and account for any seasonal differences. “Variance analysis is especially effective when you review the amount of ariance on a trend line, so that sudden changes in the variance level from month to month are more readily apparent” (Bragg, 2010, para. 2). It also involves the research of the differences; this way the outcome is a statement of the differences from expectations, and the understanding of why a variance had occurred. “The level of detailed variance analysis allows management to understand why fluctuations occur in its business, and what it can do to change the situation” (Bragg, 2010, para. 5).

Variance analysis include but are not limited to: purchase price variance, labor rate variance, and variable overhead spending variance, fixed overhead spending variance, selling price variance, material yield variance, labor efficiency variance and variable overhead efficiency variance. As with any process or analysis that may be used by a company there are disadvantages as well as the many advantages (Bragg, 2010). There are several problems with variance analysis that may prevent Johnson & Johnson as well as other companies from using it. The first is time delay. The accounting staff compiles the variance at the end of the month before issuing the results to the management team” (Bragg, 2010, para. 8). This would not function in a face-paced environment; they would need the information much faster than a month. The next problem would be variance source of information. “Many of the reasons for variances are not located in the accounting records, so the accounting staff has to sort through such information as bills of material, labor routings, and overtime records to determine causes of problems” (Bragg, 2010, para 8).

The final problem would be standard setting which, “variance analysis is essentially a comparison of actual results to an arbitrary standard that may have been derived from political bargain” (Bragg, 2010, para 8). By analyzing the importance of cost accounting to the success of a firm, individuals are able to acquire a better understanding as to why companies use this type of accounting process. Gaining knowledge about the various methods of cost accounting and how they are used enabled the company to operate the process appropriately.

Understanding how an operating budget works to discipline a firm’s management is also useful information when running a company. To do so, one would need to know the actual elements of the budget and how they are constructed. Johnson & Johnson is one of the world’s largest developer and manufacturer of medical treatment and diagnostic devices and will continue to have success provided they apply the different variations of cost accounting. As mentioned throughout this discussion, there are many tools that can be used that will ensure the success of their company as well as other companies. The decisions of inventory costing methods and analyzing product costing variances many the most encumber some aspect of cost accounting, but plays a very vital role in the financial position and success of a company.

References

Bragg, S. (2010, October 6). Accounting Tools What is variance analysis?. Retrieved from: http://www. accountingtools. com/questions-and-answers/what-is-variance-analysis. html Horngren, C. T. , Foster, G. , Datar, S. M. , Rajan, M. , & Ittner, C. (2009). Cost accounting: 2010 custom edition (13th ed. . Upper Saddle River, NJ: Prentice Hall-Pearson. Johnson & Johnson. (n. d. ). Our History. Retrieved from: http://www. jnj. com/connect/about- jnj/company-history/ Mcintosh, K. A. (n. d. ). ehow What is an Operating Budget?. Retrieved from: http://www. ehow. com/info_7947151_operating-budget. html Peavler, R. (n. d. ). LIFO and FIFO Inventory Accounting Methods Overview of Two Methods of Accounting for and Tracking Inventory. Retrieved from: http://bizfinance. about. com/od/inventory/a/Inventory_Accounting_LIFO_FIFO. htm