A.G.Barrs soft drinks business was established by Robin Barrs in 1875 at Burnfoot Lane in Falkirk. A.G.Barr PLC is the United Kingdoms leading focused soft drinks manufacturer and maker of the world-famous Irn Bru which is the most famous product which first produced in 1901. Barr's became a public limited company in 1965. With the aim of diversification and expansion, over the years, A.G.Barr has acquired a number of other companies(A.G.Barr p.l.c. Website (1875) ). A.G.Barr has a 47% increase in dividends over the past five years which represent an average payout ratio of 40% of basic EPS. Generally, this represents a growth of 27.6% over the last three years( FINAL RESULTS for the year ended 28 January 2012. [e-book] (2012)). In November 2012, soft drink rivals A.G.Barr and Britvic have agreed the terms of a merger which creates one of Europe's largest soft drinks companies(Neate, R. (2012) ). Nevertheless, the Office of Fair Trading postponement and put the merge on hold due to monopolistic and price maker reasons(BBC News (2013) ). To achieve such a growth, management and planning are one of the vital requirements. In the following sections, we will analyse the information which will help the managers of the Company to achieve their targets and also discuss the benefits and limitations of the Activity-based costing, budgeting and variance analysis and investment appraisal.
Main Body:
Managing the business:
Management accounting uses information to help in policy making, efficient planning and control, decision making and problems solving. Day to day operation control and product costing and pricing is a useful tool to A.G.Barr management. The method of activity based costing can help produce more accurate results. Activity Based Costing identifies the activities that the company performs, and then allocates indirect costs to products. The assigning of costs is based on the relationship between cost, activities and products. This method has four stages. Firstly, the management of the company must identify the activities and then to assign costs to activity costs centres with the help of cost pools, which established to match the activities. Then, recognize cost drivers and finally allocate costs to products. Through ABC, managers may decide if it is better to buy or to produce their products in order to minimise their costs and increase their profitability.
Managers, in applying budget, managers must do a market research of the beverage industry. The past five years' figures are important to sense the industry's tendency. The research can help prepare a more accurate budget. Budgeting, as the guideline, can motivate, staff and managers to meet their targets. The Budget can be monthly, quarterly and yearly in order to assist the managers to evaluate their performance. Through budget, managers can monitor its expenditure and plan investing in research and development of new products/tastes.
Consequently, if the Company introduce budgeting, it has the opportunity to apply the variances method which budgeting is part of it. However, in order to compare performance, the expected versus actual figures must be used. Business performance can be measured through variance analysis. In order to apply this method, the company must record its activities such as the price and the usage of materials. In addition, there are several variances which are very important. A.G.Barr can electronically monitor each employee's productivity. Furthermore, machines' capacity is measurable and usually, is a matter of the human factor that gets production off the track, unless there is breakage. Through variances, the company can analyse the performance of its employees, managers and also monitor any inefficiencies and dysfunctions in the production stage as well as in the other stages.
Finally, investment appraisal method is very important for planning and decision making in examining new investments that will increase profits for A.G.Barr. Before any acquisition they must examine the accounts for the past five years to estimate to evaluate its viability and profitability. Another vital issue to consider is the inflation factor that affects future inflows (Weetman, P. (2006)). Building new factories or renewing its machinery, is vital to increase productivity, minimise costs and maximise profits. A.G.Barr should also consider environmental and ethical issues. Having in mind the abovementioned methods and their usage to the Company, below, we will illustrate some of their benefits and weaknesses.
BENEFITS:
Barr's managers through ABC can monitor and minimize costs. The knowledge of accurate costing of products can help the company to decrease the price if it is potential and has the advantage of their competitors. Furthermore, understanding the true cost of providing products and services to customers is one of the key elements of survival in a competitive environment. Accurately, determining product costing can help the company to maintain a competitive advantage in terms of product pricing.
A.G.Barr should constantly seek to improvise its products and its production line, through investing in new machineries, applying new marketing methods and investing in research and development as well. The new machinery should be more efficient and environmentally friendly with the recycle of the used bottles. The cash flow generated by the project can determine the length of time required to cover the initial capital outlay. Furthermore, net present value has the advantage of deeming both, the timing of cash flow and the size of them in arriving at an appraisal. The most important of this technique is the fact that it considers the time value of money.
Most businesses have at least one limiting factor and it is important that budgets are prepared with consideration of this factor. The key is that management must determine the optimum output that can be achieved within the constraints of the limiting factor. A.G.Barr may have limited machine hours because of the giant demand of his products or liquidity problem. budgeting enables management to anticipate future problem and to take appropriate corrective action, for instance to organize a loan before the cash runs out. It is better to fail on paper rather than in reality.
Variances is related with budgeting which help the company to discover where is outside of budgeted figures. The standard cost and revenues are compared with the actual cost and revenues and this helps to identify the variances as well as the reason for them. A.G.Barr can take corrective actions for example to negotiate better prices by the suppliers, to find workers with more skills and more productive with the least wage rate, purchase high quality materials to diminish the waste and if it is essential to advertise to increase the sales. Variance analysis and performance reports are important elements of management by exception. It is where managers prevent "fires" rather than fight with them. This means that directors set standard levels of costs and revenues at reasonable levels of performance, with efficient working practices. Therefore, any variances can be identified, investigated and corrected, if necessary.
LIMITATIONS:
The running of activity based costing has its limitations. Its implementation is complex and tricky to identify cost drivers. In the same direction, to introduce this method properly frequently take many years. The cost of buying and implementing such method is tremendous and the cost of maintaining the ABC system requires a considerable amount of time for the collection of data.
All investment decisions involve some risk, especially long-term investments where forecasts several years ahead have to be made. Payback and ARR are not concerned about time value of money. A.G.Barr as a wise investor, must consider the future inflows to deduct in real money. ARR depend on profits as result of including non-cash expenses like depreciation. Moreover, NPVs can be compared with other projects, but only if the initial cost is the same. This is because the method does not provide a percentage rate of return on investment. One of the limitations of IRR is that by giving an exact result, it can be misleading to business users into believing that investment appraisal is a precise process without risk and uncertainties.
The major restriction is that it takes up a lot of time and we all know time is valuable and expensive too. Budgets are based on assumptions that often turn out to be inaccurate and do not consider quality and customer service. Furthermore, the forecast figures might lead to false decisions, for instance, if the sales budget is not encouraged and the Company want to expand its revenues, as a result to increase their price. This motion might pilot consumers away and the budget responsible for this failure.
Moreover, variances analysis tells where the difference occurred but not why. Managers must not always appraise for "favourable" variances and penalise for "adverse" variances. In some cases, a 'favourable' variance can be as bad or worse than an 'adverse' variance. For instance, favourable material price variance which indicate that materials are cheap (Appendix 1). Thus, the company has adverse material usage variance and adverse efficiency variance because of the low quality of materials.
One of the most important parts of running a successful business is to have excellent management. A.G.Barr with a good management team can build and maintain their competitive advantage. The referred methods give the strength to the company to improve their reputation. Brilliant management, not only can catapult the company's productivity but it will also be recognised from consumers.
