Essay :Energy Crisis

Now there is a serious Power Crisis in the ENTIRE country. Here in Islamabad, we are facing load-shedding up to 4-8 hours a day in urban areas (that is in Islamabad) and things are not improving. Initially the load-shedding was for 30 minutes after every 2 hours but since last week, they do it after every 1 hour during the day time and every 30 minutes after 5 PM (for 30 minutes mostly and 1 hour in between). The most irritating part of this load-shedding is that NO schedule whatsoever has been published for people to know and try to manage things in a better way. I was watching Geo and they were showing reports of rural areas of entire country where they are getting electricity for only 2-4 hours a day.
Effects:
It affects all sections of society, students (education), industry, agriculture, health (hospitals) - every aspect of society as we know it.The continuing power crisis has not only disrupted the daily lives and businesses of people but has also added to their miseries. It has impeded the growth of both small scale and large scale businesses. It would not be wrong to say that the frequent power breakdowns have brought both the domestic and social lives to a standstill. The shopping malls and the open markets that were once swamped by the customers are now dark and deserted.
Resources of electricity in pakistan:
As per following details power generation in Pakistan is 12641 mega watts. While 5117 mega watts power is under construction and pre feasibility stage.
Hub Power Company 1286 MW
Jamshoro Power Company 1054 MW
Lalpir & Pakgen Thermal Station 727 MW
Guddu Thermal Station 1049 MW
Kapco 1600 MW
Ghazi Barotha 1450 MW
Mangla 1000 MW
Tarbela 3478 MW
Warsak 243 MW
Chashma Dam 184 MW
Malakand Dam 22 MW
Dargai Dam 20 MW
Rasul Dam 20 MW
Nadipur Dam 13 MW
Shadipur Dam 14 MW
Chihoki Dam 14 MW
Renala Dam 1 MW
Chitral Dam 1 MW
Kuram Ghari Dam 4 MW
Jagran Dam 30 MW
Chashma Nuclear Power Complex 300 MW
Karachi Nuclear Power Plant 125 MW
Jhimpir Wind Power Plant 6 MW
Under Construction
Akhori Dam 600 MW (under consideration: in pre feasibility study stage)
Diamir Basha Dam 4500 MW (under construction, to be completed in 2018)
Gomal Zam Dam 17 MW (under construction, to be completed in 2017)
Conclusion:
It is, therefore, very clear from the above that Pakistan needs to aggressively pursue ways to increase its power-generating capacity. The best options available today are nuclear and coal, followed by wind and solar. Hydroelectricity can only be pursued after all environmental, ecological and geopolitical issues are settled with a consensus among all four provinces.
Pakistan needs to set up at least a dozen nuclear power plants, large coal fired plants, wind farms and solar plants in the next 10 years to generate about 20,000 MW of electricity. We need to invest at least a billion dollars a year in developing the infrastructure and establishing power plants using nuclear, coal, wind and solar technology. We need to cut back on non-development expenditures by at least one billion dollars a year to invest in energy needs.
Industrialisation around the world has taken place because of the abundance of reliable and cheap electrical power (infrastructure, human resource and government incentives follow). Reliable and cheap availability of electric power in Pakistan will lead to large-scale investment in industry, creation of jobs, elimination of unemployment and poverty, greater manufacturing and exports, trade surplus and the reduction of deficits. It will lead to a prosperous Pakistan
Effect:
An energy crisis is any great shortfall (or price rise) in the supply of energy resources to an economy. It usually refers to the shortage of oil and additionally to electricity or other natural resources.
The crisis often has effects on the rest of the economy, with many recessions being caused by an energy crisis in some form. In particular, the production costs of electricity rise, which raises manufacturing costs.
For the consumer, the price of gasoline (petrol) and diesel for cars and other vehicles rises, leading to reduced consumer confidence and spending, higher transportation costs and general price rising.

Essay: Water Crisis in Pakistan

God has blessed Pakistan with abandoned water resources, with water flowing down the Himalayas and Karakorum heights, from the world’s largest glaciers, a free and unique bounty of nature for this land of alluvial plains. As a result of this natural resource, today we have the worlds marvelous and the largest irrigation system that irrigates over 16 million hectors of land, out of 34 million hectors of cultivable land available. But unfortunately as we all know that now a days our country is facing severe shortage of water. There are two main reasons, one natural due to prolong drought---which is beyond the control of a man, and the other due to the gross negligence in the development and mis-management of water resources.
Water reservoirs / capacities:-
Pakistan is having three basic reservoirs, namely mangla dam reservoir, Terbela dam reservoir and Chashma barrage reservoir. more small reservoirs like Warsak, Baran dam hub, Khanpur, Tanda, Rawal, Simly, Bakht khan Hamal lake, Mancher lake, Kinjhar lake and Chotiari lake Arealso included as small storage.
Gross capacity of 11.62 maf and a live storage capacity of 9.68 maf in terbela dam which has now reduce to 7.295 due to silting, in mangla dam presently storage capacity is 4.636 maf water actual capacity was 5.41 and chasma barrage capacity is also reduce from 0.717 to 0.435 maf.
UTILIZATION OF WATER
In Pakistan we utilize the water available to us for different purposes. The basic utilization is for irrigation and then used for power generation, drinking and also provided to some Industries.
Impact on economy / society
As I said earlier that agriculture is our backbone and the water flowing in the channels to the crops is its blood line—and if there is no or less water then we should be prepared for facing problems economically as well as socially. According to the estimates of federal government, the agriculture sector would suffer a loss of about Rs. 90 billion because of drought.
a) Less water means less agricultural yields and to fulfill the food requirements of the nation, we will be dependent on other countries.
(b) Raising livestock is the main source of livelihood of rural areas. It is also an important economic activity, which contributes 9.7% of gdp, will be affected due to shortage of water.
(c) Orchards of Pakistan bring home a healthy amount of foreign exchange, which can be affected due water shortage.
(d) Due to less production of main crops, which are wheat, cotton, sugar cane and rice, the Industries related to them will suffer adversely.
(e) Then due to drought and more dependency on ground water for irrigation, the water table will go down, and this will cause water constrains to the population.
(f) Less agricultural outputs will compel people to head towards urban areas for jobs, which will increase the unemployment further.
(g) The distribution of water is controlled from the center by irsa (Indus river system authority) as per 1991 agreement between the provinces. Now the shortage of water will cause disputes between the provinces, which may cause harm to the national integrity.
Recommendations
The national water strategy must be based upon two essential elements covering
• Water developments
• Water management
The water development strategy is largely based upon construction of new storage reservoirs where as the water management strategy will help in reducing the present losses
Water development
In this construction of following dams should start immediately:-
(a) Chasha dam
(b) Kalabagh dam
(c) Thal reservoir
(d) Raised Mangla dam
(e) Mirani dam
(f) Gomalzam dam
From these projects we shall be able to store additional 20maf of water.
Water management
1. Presently the losses occur due to seepage, infiltration and leakages etc. seepage results in water logging and these losses can be reduced or eliminated by lining the canals.
2. In addition, people should be educated to conserve water by cooperation.
3. Further more government should make laws on water conservation.
4. Use modern irrigation techniques, that are trickling, sprinkling etc.
5. Presently irrigation department has failed to stop the illegal theft and extraction; thus irrigation distribution system needs to be privatized through water user associations.
Conclusion
Implementation of the recommendations will enable the country to meet the challenges, and achieve the objectives of integrated, efficient, environmentally and financially sustainable development and management of limited water resources. At the same time it will enable us to utilize every drop of our water for our bright future.

The sound card - an adapter
The sound card itself is an ISA adapter. Here you see an AWE64 Gold card:
The connectors may look different on different sound cards, but as an example: In the back of
the AWE64 Gold card you find connectors to:
1)Microphone input, a jack
2)Line input, a jack
3)Two phone jacks for active speakers
4)A DB15 jack for MIDI or joystick.
Sound cards typically have a 2 Watt amplifier built-in. It can pull a set of earphones. The
exception is the Gold card, where the amplifier is eliminated. It has no practical significance, since you probably want to attach it to a pair of active speakers.

Meaning of Standard Costing:

When you want to measure some thing, you must take some parameter or yardstick for measuring. We can call this as standard. What are your daily expenses? An average of $50! If you have been spending this much for so many days, then this is your daily standard expense.
The word standard means a benchmark or yardstick. The standard cost is a predetermined cost which determines in advance what each product or service should cost under given circumstances.
In the words of Backer and Jacobsen, “Standard cost is the amount the firm thinks a product or the operation of the process for a period of time should cost, based upon certain assumed conditions of efficiency, economic conditions and other factors.”
Definition
The CIMA, London has defined standard cost as “a predetermined cost which is calculated from managements standards of efficient operations and the relevant necessary expenditure.” They are the predetermined costs on technical estimate of material labor and overhead for a selected period of time and for a prescribed set of working conditions. In other words, a standard cost is a planned cost for a unit of product or service rendered.
The technique of using standard costs for the purposes of cost control is known as standard costing. It is a system of cost accounting which is designed to find out how much should be the cost of a product under the existing conditions. The actual cost can be ascertained only when production is undertaken. The predetermined cost is compared to the actual cost and a variance between the two enables the management to take necessary corrective measures.
Advantages
Standard costing is a management control technique for every activity. It is not only useful for cost control purposes but is also helpful in production planning and policy formulation. It allows management by exception. In the light of various objectives of this system, some of the advantages of this tool are given below:
1. Efficiency measurement-- The comparison of actual costs with standard costs enables the management to evaluate performance of various cost centers. In the absence of standard costing system, actual costs of different period may be compared to measure efficiency. It is not proper to compare costs of different period because circumstance of both the periods may be different. Still, a decision about base period can be made with which actual performance can be compared.
2. Finding of variance-- The performance variances are determined by comparing actual costs with standard costs. Management is able to spot out the place of inefficiencies. It can fix responsibility for deviation in performance. It is possible to take corrective measures at the earliest. A regular check on various expenditures is also ensured by standard cost system.
3. Management by exception-- The targets of different individuals are fixed if the performance is according to predetermined standards. In this case, there is nothing to worry. The attention of the management is drawn only when actual performance is less than the budgeted performance. Management by exception means that everybody is given a target to be achieved and management need not supervise each and everything. The responsibilities are fixed and every body tries to achieve his/her targets.
4. Cost control-- Every costing system aims at cost control and cost reduction. The standards are being constantly analyzed and an effort is made to improve efficiency. Whenever a variance occurs, the reasons are studied and immediate corrective measures are undertaken. The action taken in spotting weak points enables cost control system.
5. Right decisions-- It enables and provides useful information to the management in taking important decisions. For example, the problem created by inflating, rising prices. It can also be used to provide incentive plans for employees etc.
6. Eliminating inefficiencies-- The setting of standards for different elements of cost requires a detailed study of different aspects. The standards are set differently for manufacturing, administrative and selling expenses. Improved methods are used for setting these standards. The determination of manufacturing expenses will require time and motion study for labor and effective material control devices for materials. Similar studies will be needed for finding other expenses. All these studies will make it possible to eliminate inefficiencies at different steps.
Limitations of Standard Costing
1. It cannot be used in those organizations where non-standard products are produced. If the production is undertaken according to the customer specifications, then each job will involve different amount of expenditures.
2. The process of setting standard is a difficult task, as it requires technical skills. The time and motion study is required to be undertaken for this purpose. These studies require a lot of time and money.
3. There are no inset circumstances to be considered for fixing standards. The conditions under which standards are fixed do not remain static. With the change in circumstances, if the standards are not revised the same become impracticable.
4. The fixing of responsibility is not an easy task. The variances are to be classified into controllable and uncontrollable variances. Standard costing is applicable only for controllable variances.
For instance, if the industry changed the technology then the system will not be suitable. In that case, we will have to change or revise the standards. A frequent revision of standards will become costly.

Setting Standards

Normally, setting up standards is based on the past experience. The total standard cost includes direct materials, direct labor and overheads. Normally, all these are fixed to some extent. The standards should be set up in a systematic way so that they are used as a tool for cost control.
Various Elements which Influence the Setting of Standards
Setting Standards for Direct Materials
There are several basic principles which ought to be appreciated in setting standards for direct materials. Generally, when you want to purchase some material what are the factors you consider. If material is used for a product, it is known as direct material. On the other hand, if the material cost cannot be assigned to the manufacturing of the product, it will be called indirect material. Therefore, it involves two things:
· Quality of material
· Price of the material
When you want to purchase material, the quality and size should be determined. The standard quality to be maintained should be decided. The quantity is determined by the production department. This department makes use of historical records, and an allowance for changing conditions will also be given for setting standards. A number of test runs may be undertaken on different days and under different situations, and an average of these results should be used for setting material quantity standards.
The second step in determining direct material cost will be a decision about the standard price. Material’s cost will be decided in consultation with the purchase department. The cost of purchasing and store keeping of materials should also be taken into consideration. The procedure for purchase of materials, minimum and maximum levels for various materials, discount policy and means of transport are the other factors which have bearing on the materials cost price. It includes the following:
· Cost of materials
· Ordering cost
· Carrying cost
The purpose should be to increase efficiency in procuring and store keeping of materials. The type of standard used-- ideal standard or expected standard-- also affects the choice of standard price.
Setting Direct Labor Cost
If you want to engage a labor force for manufacturing a product or a service for which you need to pay some amount, this is called wages. If the labor is engaged directly to produce the product, this is known as direct labor. The second largest amount of cost is of labor. The benefit derived from the workers can be assigned to a particular product or a process. If the wages paid to workers cannot be directly assigned to a particular product, these will be known as indirect wages. The time required for producing a product would be ascertained and labor should be properly graded. Different grades of workers will be paid different rates of wages. The times spent by different grades of workers for manufacturing a product should also be studied for deciding upon direct labor cost. The setting of standard for direct labor will be done basically on the following:
· Standard labor time for producing
· Labor rate per hour
Standard labor time indicates the time taken by different categories of labor force which are as under:
· Skilled labor
· Semi-skilled labor
· Unskilled labor
For setting a standard time for labor force, we normally take in to account previous experience, past performance records, test run result, work-study etc. The labor rate standard refers to the expected wage rates to be paid for different categories of workers. Past wage rates and demand and supply principle may not be a safe guide for determining standard labor rates. The anticipation of expected changes in labor rates will be an essential factor. In case there is an agreement with workers for payment of wages in the coming period, these rates should be used. If a premium or bonus scheme is in operation, then anticipated extra payments should also be included. Where a piece rate system is used, standard cost will be fixed per piece. The object of fixed standard labor time and labor rate is to device maximum efficiency in the use of labor.
Setting Standards of Overheads
The next important element comes under overheads. The very purpose of setting standard for overheads is to minimize the total cost. Standard overhead rates are computed by dividing overhead expenses by direct labor hours or units produced. The standard overhead cost is obtained by multiplying standard overhead rate by the labor hours spent or number of units produced. The determination of overhead rate involves three things:
· Determination of overheads
· Determination of labor hours or units manufactured
· Calculating overheads rate by dividing A by B
The overheads are classified into fixed overheads, variable overheads and semi-variable overheads. The fixed overheads remain the same irrespective of level of production, while variable overheads change in the proportion of production. The expenses increase or decrease with the increase or decrease in output. Semi-variable overheads are neither fixed nor variable. These overheads increase with the increase in production but the rate of increase will be less than the rate of increase in production. The division of overheads into fixed, variable and semi-variable categories will help in determining overheads.

Determination of Standard Costs

How should the ideal standards for better controlling be determined?
1. Determination of Cost Center
According to J. Betty, “A cost center is a department or part of a department or an item of equipment or machinery or a person or a group of persons in respect of which costs are accumulated, and one where control can be exercised.” Cost centers are necessary for determining the costs. If the whole factory is engaged in manufacturing a product, the factory will be a cost center. In fact, a cost center describes the product while cost is accumulated. Cost centers enable the determination of costs and fixation of responsibility. A cost center relating to a person is called personnel cost center, and a cost center relating to products and equipments is called impersonal cost center.
2. Current Standards
A current standard is a standard which is established for use over a short period of time and is related to current condition. It reflects the performance that should be attained during the current period. The period for current standard is normally one year. It is presumed that conditions of production will remain unchanged. In case there is any change in price or manufacturing condition, the standards are also revised. Current standard may be ideal standard and expected standard.
3. Ideal Standard
This is the standard which represents a high level of efficiency. Ideal standard is fixed on the assumption that favorable conditions will prevail and management will be at its best. The price paid for materials will be lowest and wastes etc. will be minimum possible. The labor time for making the production will be minimum and rates of wages will also be low. The overheads expenses are also set with maximum efficiency in mind. All the conditions, both internal and external, should be favorable and only then ideal standard will be achieved.
Ideal standard is fixed on the assumption of those conditions which may rarely exist. This standard is not practicable and may not be achieved. Though this standard may not be achieved, even then an effort is made. The deviation between targets and actual performance is ignorable. In practice, ideal standard has an adverse effect on the employees. They do not try to reach the standard because the standards are not considered realistic.
4. Basic Standards
A basic standard may be defined as a standard which is established for use for an indefinite period which may a long period. Basic standard is established for a long period and is not adjusted to the preset conations. The same standard remains in force for a long period. These standards are revised only on the changes in specification of material and technology productions. It is indeed just like a number against which subsequent process changes can be measured. Basic standard enables the measurement of changes in costs. For example, if the basic cost for material is Rs. 20 per unit and the current price is Rs. 25 per unit, it will show an increase of 25% in the cost of materials. The changes in manufacturing costs can be measured by taking basic standard, as a base standard cannot serve as a tool for cost control purpose because the standard is not revised for a long time. The deviation between standard cost and actual cost cannot be used as a yardstick for measuring efficiency.
5. Normal Standards
As per terminology, normal standard has been defined as a standard which, it is anticipated, can be attained over a future period of time, preferably long enough to cover one trade cycle. This standard is based on the conditions which will cover a future period of five years, concerning one trade cycle. If a normal cycle of ups and downs in sales and production is 10 years, then standard will be set on average sales and production which will cover all the years. The standard attempts to cover variance in the production from one time to another time. An average is taken from the periods of recession and depression. The normal standard concept is theoretical and cannot be used for cost control purpose. Normal standard can be properly applied for absorption of overhead cost over a long period of time.
6. Organization for Standard Costing
The success of standard costing system will depend upon the setting up of proper standards. For the purpose of setting standards, a person or a committee should be given this job. In a big concern, a standard costing committee is formed for this purpose. The committee includes production manager, purchase manager, sales manager, personnel manager, chief engineer and cost accountant. The cost accountant acts as a co-coordinator of this committee.
7. Accounting System
Classification of accounts is necessary to meet the required purpose, i.e. function, asset or revenue item. Codes can be used to have a speedy collection of accounts. A standard is a pre-determined measure of material, labor and overheads. It may be expressed in quality and its monetary measurements in standard costs.

Break Even Analysis:

Introduction
In this lesson, we will discuss in detail the highlights associated with cost function and cost relations with the production and distribution system of an economic entity.
To assist planning and decision making, management should know not only the budgeted profit, but also:
· the output and sales level at which there would neither profit nor loss (break-even point)
· the amount by which actual sales can fall below the budgeted sales level, without a loss being incurred (the margin of safety)
MARGINAL COSTS, CONTRIBUTION AND PROFIT
A marginal cost is another term for a variable cost. The term ‘marginal cost’ is usually applied to the variable cost of a unit of product or service, whereas the term ‘variable cost’ is more commonly applied to resource costs, such as the cost of materials and labour hours.
Marginal costing is a form of management accounting based on the distinction between:
a. the marginal costs of making selling goods or services, and
b. fixed costs, which should be the same for a given period of time, regardless of the level of activity in the period.
Suppose that a firm makes and sells a single product that has a marginal cost of £5 per unit and that sells for £9 per unit. For every additional unit of the product that is made and sold, the firm will incur an extra cost of £5 and receive income of £9. The net gain will be £4 per additional unit. This net gain per unit, the difference between the sales price per unit and the marginal cost per unit, is called contribution.
Contribution is a term meaning ‘making a contribution towards covering fixed costs and making a profit’. Before a firm can make a profit in any period, it must first of all cover its fixed costs. Breakeven is where total sales revenue for a period just covers fixed costs, leaving neither profit nor loss. For every unit sold in excess of the breakeven point, profit will increase by the amount of the contribution per unit.
C-V-P analysis is broadly known as cost-volume-profit analysis. Specifically speaking, we all are concerned with in-depth analysis and application of CVP in practical world of industry management.
Cost-Volume-Profit (C-V-P) Relationship
We have observed that in marginal costing, marginal cost varies directly with the volume of production or output. On the other hand, fixed cost remains unaltered regardless of the volume of output within the scale of production already fixed by management. In case if cost behavior is related to sales income, it shows cost-volume-profit relationship. In net effect, if volume is changed, variable cost varies as per the change in volume. In this case, selling price remains fixed, fixed remains fixed and then there is a change in profit.
Being a manager, you constantly strive to relate these elements in order to achieve the maximum profit. Apart from profit projection, the concept of Cost-Volume-Profit (CVP) is relevant to virtually all decision-making areas, particularly in the short run.
The relationship among cost, revenue and profit at different levels may be expressed in graphs such as breakeven charts, profit volume graphs, or in various statement forms.
Profit depends on a large number of factors, most important of which are the cost of manufacturing and the volume of sales. Both these factors are interdependent. Volume of sales depends upon the volume of production and market forces which in turn is related to costs. Management has no control over market. In order to achieve certain level of profitability, it has to exercise control and management of costs, mainly variable cost. This is because fixed cost is a non-controllable cost. But then, cost is based on the following factors:
· Volume of production
· Product mix
· Internal efficiency and the productivity of the factors of production
· Methods of production and technology
· Size of batches
· Size of plant
Thus, one can say that cost-volume-profit analysis furnishes the complete picture of the profit structure. This enables management to distinguish among the effect of sales, fluctuations in volume and the results of changes in price of product/services.
In other words, CVP is a management accounting tool that expresses relationship among sale volume, cost and profit. CVP can be used in the form of a graph or an equation. Cost-volume- profit analysis can answer a number of analytical questions. Some of the questions are as follows:
1. What is the breakeven revenue of an organization?
2. How much revenue does an organization need to achieve a budgeted profit?
3. What level of price change affects the achievement of budgeted profit?
4. What is the effect of cost changes on the profitability of an operation?
Cost-volume-profit analysis can also answer many other “what if” type of questions. Cost-volume-profit analysis is one of the important techniques of cost and management accounting. Although it is a simple yet a powerful tool for planning of profits and therefore, of commercial operations. It provides an answer to “what if” theme by telling the volume required to produce.
Following are the three approaches to a CVP analysis:
· Cost and revenue equations
· Contribution margin
· Profit graph
Objectives of Cost-Volume-Profit Analysis
1. In order to forecast profits accurately, it is essential to ascertain the relationship between cost and profit on one hand and volume on the other.
2. Cost-volume-profit analysis is helpful in setting up flexible budget which indicates cost at various levels of activities.
3. Cost-volume-profit analysis assist in evaluating performance for the purpose of control.
4. Such analysis may assist management in formulating pricing policies by projecting the effect of different price structures on cost and profit.

Break Even Analysis:

Assumptions and Terminology
Following are the assumptions on which the theory of CVP is based:
1. The changes in the level of various revenue and costs arise only because of the changes in the number of product (or service) units produced and sold, e.g., the number of television sets produced and sold by Sigma Corporation. The number of output (units) to be sold is the only revenue and cost driver. Just as a cost driver is any factor that affects costs, a revenue driver is any factor that affects revenue.
2. Total costs can be divided into a fixed component and a component that is variable with respect to the level of output. Variable costs include the following:
o Direct materials
o Direct labor
o Direct chargeable expenses
Variable overheads include the following:
o Variable part of factory overheads
o Administration overheads
o Selling and distribution overheads
3. There is linear relationship between revenue and cost.
4. When put in a graph, the behavior of total revenue and cost is linear (straight line), i.e. Y = mx + C holds good which is the equation of a straight line.
5. The unit selling price, unit variable costs and fixed costs are constant.
6. The theory of CVP is based upon the production of a single product. However, of late, management accountants are functioning to give a theoretical and a practical approach to multi-product CVP analysis.
7. The analysis either covers a single product or assumes that the sales mix sold in case of multiple products will remain constant as the level of total units sold changes.
8. All revenue and cost can be added and compared without taking into account the time value of money.
9. The theory of CVP is based on the technology that remains constant.
10. The theory of price elasticity is not taken into consideration.
Many companies, and divisions and sub-divisions of companies in industries such as airlines, automobiles, chemicals, plastics and semiconductors have found the simple CVP relationships to be helpful in the following areas:
· Strategic and long-range planning decisions
· Decisions about product features and pricing
In real world, simple assumptions described above may not hold good. The theory of CVP can be tailored for individual industries depending upon the nature and peculiarities of the same.
For example, predicting total revenue and total cost may require multiple revenue drivers and multiple cost drivers. Some of the multiple revenue drivers are as follows:
· Number of output units
· Number of customer visits made for sales
· Number of advertisements placed
Some of the multiple cost drivers are as follows:
· Number of units produced
· Number of batches in which units are produced
Managers and management accountants, however, should always assess whether the simplified CVP relationships generate sufficiently accurate information for predictions of how total revenue and total cost would behave. However, one may come across different complex situations to which the theory of CVP would rightly be applicable in order to help managers to take appropriate decisions under different situations.
Limitations of Cost-Volume Profit Analysis Assumptions and Terminology
Following are the assumptions on which the theory of CVP is based:
1. The changes in the level of various revenue and costs arise only because of the changes in the number of product (or service) units produced and sold, e.g., the number of television sets produced and sold by Sigma Corporation. The number of output (units) to be sold is the only revenue and cost driver. Just as a cost driver is any factor that affects costs, a revenue driver is any factor that affects revenue.
2. Total costs can be divided into a fixed component and a component that is variable with respect to the level of output. Variable costs include the following:
o Direct materials
o Direct labor
o Direct chargeable expenses
Variable overheads include the following:
o Variable part of factory overheads
o Administration overheads
o Selling and distribution overheads
3. There is linear relationship between revenue and cost.
4. When put in a graph, the behavior of total revenue and cost is linear (straight line), i.e. Y = mx + C holds good which is the equation of a straight line.
5. The unit selling price, unit variable costs and fixed costs are constant.
6. The theory of CVP is based upon the production of a single product. However, of late, management accountants are functioning to give a theoretical and a practical approach to multi-product CVP analysis.
7. The analysis either covers a single product or assumes that the sales mix sold in case of multiple products will remain constant as the level of total units sold changes.
8. All revenue and cost can be added and compared without taking into account the time value of money.
9. The theory of CVP is based on the technology that remains constant.
10. The theory of price elasticity is not taken into consideration.
Many companies, and divisions and sub-divisions of companies in industries such as airlines, automobiles, chemicals, plastics and semiconductors have found the simple CVP relationships to be helpful in the following areas:
· Strategic and long-range planning decisions
· Decisions about product features and pricing
In real world, simple assumptions described above may not hold good. The theory of CVP can be tailored for individual industries depending upon the nature and peculiarities of the same.
For example, predicting total revenue and total cost may require multiple revenue drivers and multiple cost drivers. Some of the multiple revenue drivers are as follows:
· Number of output units
· Number of customer visits made for sales
· Number of advertisements placed
Some of the multiple cost drivers are as follows:
· Number of units produced
· Number of batches in which units are produced
Managers and management accountants, however, should always assess whether the simplified CVP relationships generate sufficiently accurate information for predictions of how total revenue and total cost would behave. However, one may come across different complex situations to which the theory of CVP would rightly be applicable in order to help managers to take appropriate decisions under different situations.
Limitations of Cost-Volume Profit Analysis
The CVP analysis is generally made under certain limitations and with certain assumed conditions, some of which may not occur in practice. Following are the main limitations and assumptions in the cost-volume-profit analysis:
1. It is assumed that the production facilities anticipated for the purpose of cost-volume-profit analysis do not undergo any change. Such analysis gives misleading results if expansion or reduction of capacity takes place.
2. In case where a variety of products with varying margins of profit are manufactured, it is difficult to forecast with reasonable accuracy the volume of sales mix which would optimize the profit.
3. The analysis will be correct only if input price and selling price remain fairly constant which in reality is difficulty to find. Thus, if a cost reduction program is undertaken or selling price is changed, the relationship between cost and profit will not be accurately depicted.
4. In cost-volume-profit analysis, it is assumed that variable costs are perfectly and completely variable at all levels of activity and fixed cost remains constant throughout the range of volume being considered. However, such situations may not arise in practical situations.
5. It is assumed that the changes in opening and closing inventories are not significant, though sometimes they may be significant.
6. Inventories are valued at variable cost and fixed cost is treated as period cost. Therefore, closing stock carried over to the next financial year does not contain any component of fixed cost. Inventory should be valued at full cost in reality.
Sensitivity Analysis or What If Analysis and Uncertainty
Sensitivity analysis is relatively a new term in management accounting. It is a “what if” technique that managers use to examine how a result will change if the original predicted data are not achieved or if an underlying assumption changes.
In the context of CVP analysis, sensitivity analysis answers the following questions:
a. What will be the operating income if units sold decrease by 15% from original prediction?
b. What will be the operating income if variable cost per unit increases by 20%?
The sensitivity of operating income to various possible outcomes broadens the perspective of management regarding what might actually occur before making cost commitments.
A spreadsheet can be used to conduct CVP-based sensitivity analysis in a systematic and efficient way. With the help of a spreadsheet, this analysis can be easily conducted to examine the effect and interaction of changes in selling prices, variable cost per unit, fixed costs and target operating incomes.
The CVP analysis is generally made under certain limitations and with certain assumed conditions, some of which may not occur in practice. Following are the main limitations and assumptions in the cost-volume-profit analysis:
1. It is assumed that the production facilities anticipated for the purpose of cost-volume-profit analysis do not undergo any change. Such analysis gives misleading results if expansion or reduction of capacity takes place.
2. In case where a variety of products with varying margins of profit are manufactured, it is difficult to forecast with reasonable accuracy the volume of sales mix which would optimize the profit.
3. The analysis will be correct only if input price and selling price remain fairly constant which in reality is difficulty to find. Thus, if a cost reduction program is undertaken or selling price is changed, the relationship between cost and profit will not be accurately depicted.
4. In cost-volume-profit analysis, it is assumed that variable costs are perfectly and completely variable at all levels of activity and fixed cost remains constant throughout the range of volume being considered. However, such situations may not arise in practical situations.
5. It is assumed that the changes in opening and closing inventories are not significant, though sometimes they may be significant.
6. Inventories are valued at variable cost and fixed cost is treated as period cost. Therefore, closing stock carried over to the next financial year does not contain any component of fixed cost. Inventory should be valued at full cost in reality.
Sensitivity Analysis or What If Analysis and Uncertainty
Sensitivity analysis is relatively a new term in management accounting. It is a “what if” technique that managers use to examine how a result will change if the original predicted data are not achieved or if an underlying assumption changes.
In the context of CVP analysis, sensitivity analysis answers the following questions:
a. What will be the operating income if units sold decrease by 15% from original prediction?
b. What will be the operating income if variable cost per unit increases by 20%?
The sensitivity of operating income to various possible outcomes broadens the perspective of management regarding what might actually occur before making cost commitments.
A spreadsheet can be used to conduct CVP-based sensitivity analysis in a systematic and efficient way. With the help of a spreadsheet, this analysis can be easily conducted to examine the effect and interaction of changes in selling prices, variable cost per unit, fixed costs and target operating incomes.

Systems of Costing

It has already been stated that there are two main methods used to determine costs. These are:
· Job cost method • Process cost method
It is possible to ascertain the costs under each of the above methods by two different ways:
· Historical costing
· Standard costing
Historical Costing
Historical costing can be of the following two types in nature:
· Post costing
· Continuous costing
Post Costing
Post costing means ascertainment of cost after the production is completed. This is done by analyzing the financial accounts at the end of a period in such a way so as to disclose the cost of the units which have been produced.
For instance, if the cost of product A is to be calculated on this basis, one will have to wait till the materials are actually purchased and used, labor actually paid and overhead expenditure actually incurred. This system is used only for ascertaining the costs but not useful for exercising any control over costs, as one comes to know of things after they had taken place. It can serve as
guidance for future production only when conditions in future continue to be the same.
Continuous Costing
In case of this method, cost is ascertained as soon as a job is completed or even when a job is in progress. This is done usually before a job is over or product is made. In the process, actual expenditure on materials and wages and share of overheads are also estimated. Hence, the figure of cost ascertained in this case is not exact. But it has an advantage of providing cost information to the management promptly, thereby enabling it to take necessary corrective action on time. However, it neither provides any standard for judging current efficiency nor does it disclose what the cost of a job ought to have been.
Standard Costing
Standard costing is a system under which the cost of a product is determined in advance on certain pre-determined standards. With reference to the example given in post costing, the cost of product A can be calculated in advance if one is in a position to estimate in advance the material labor and overheads that should be incurred over the product. All this requires an efficient system of cost accounting. However, this system will not be useful if a vigorous system of controlling costs and standard costs are not in force. Standard costing is becoming more and more popular nowadays.

Techniques of Costing

Besides the above methods of costing, following are the types of costing techniques which are used by management only for controlling costs and making some important managerial decisions. As a matter of fact, they are not independent methods of cost finding such as job or process costing but are basically costing techniques which can be used as an advantage with any of the methods discussed above.
1. Marginal Costing
Marginal costing is a technique of costing in which allocation of expenditure to production is restricted to those expenses which arise as a result of production, e.g., materials, labor, direct expenses and variable overheads. Fixed overheads are excluded in cases where production varies because it may give misleading results. The technique is useful in manufacturing industries with varying levels of output.
2. Direct Costing
The practice of charging all direct costs to operations, processes or products and leaving all indirect costs to be written off against profits in the period in which they arise is termed as direct costing. The technique differs from marginal costing because some fixed costs can be considered as direct costs in appropriate circumstances.
3. Absorption or Full Costing
The practice of charging all costs both variable and fixed to operations, products or processes is termed as absorption costing.
4. Uniform Costing
A technique where standardized principles and methods of cost accounting are employed by a number of different companies and firms is termed as uniform costing. Standardization may extend to the methods of costing, accounting classification including codes, methods of defining costs and charging depreciation, methods of allocating or apportioning overheads to cost centers or cost units. The system, thus, facilitates inter- firm comparisons, establishment of realistic pricing policies, etc.

Methods of Costing

Costing can be defined as the technique and process of ascertaining costs. The principles in every method of costing are same but the methods of analyzing and presenting the costs differ with the nature of business. The methods of job costing are as follows:
1. Job Costing
The system of job costing is used where production is not highly repetitive and in addition consists of distinct jobs so that the material and labor costs can be identified by order number. This method of costing is very common in commercial foundries and drop forging shops and in plants making specialized industrial equipments. In all these cases, an account is opened for each job and all appropriate expenditure is charged thereto.
2. Contract Costing
Contract costing does not in principle differ from job costing. A contract is a big job whereas a job is a small contract. The term is usually applied where large-scale contracts are carried out. In case of ship-builders, printers, building contractors etc., this system of costing is used. Job or contract is also termed as terminal costing.
3. Cost Plus Costing
In contracts where in addition to cost, an agreed sum or percentage to cover overheads and fit is paid to a contractor, the system is termed as cost plus costing. The term cost here includes materials, labor and expenses incurred directly in the process of production. The system is used generally in cases where government happens to be the party to give contract.
4. Batch Costing
This method is employed where orders or jobs are arranged in different batches after taking into account the convenience of producing articles. The unit of cost is a batch or a group of identical products instead of a single job order or contract. This method is particularly suitable for general engineering factories which produce components in convenient economic batches and pharmaceutical industries.
5. Process Costing
If a product passes through different stages, each distinct and well defined, it is desired to know the cost of production at each stage. In order to ascertain the same, process costing is employed under which a separate account is opened for each process.
This system of costing is suitable for the extractive industries, e.g., chemical manufacture, paints, foods, explosives, soap making etc.
6. Operation Costing
Operation costing is a further refinement of process costing. The system is employed in the industries of the following types:
a. The industry in which mass or repetitive production is carried out
b. The industry in which articles or components have to be stocked in semi-finished stage to facilitate the execution of special orders, or for the convenience of issue for later operations
The procedure of costing is broadly the same as process costing except that in this case, cost unit is an operation instead of a process. For example, the manufacturing of handles for bicycles involves a number of operations such as those of cutting steel sheets into proper strips molding, machining and finally polishing. The cost to complete these operations may be found out separately.
7. Unit Costing (Output Costing or Single Costing)
In this method, cost per unit of output or production is ascertained and the amount of each element constituting such cost is determined. In case where the products can be expressed in identical quantitative units and where manufacture is continuous, this type of costing is applied. Cost statements or cost sheets are prepared in which various items of expense are classified and the total expenditure is divided by the total quantity produced in order to arrive at per unit cost of production. The method is suitable in industries like brick making, collieries, flour mills, paper mills, cement manufacturing etc.
8. Operating Costing
This system is employed where expenses are incurred for provision of services such as those tendered by bus companies, electricity companies, or railway companies. The total expenses regarding operation are divided by the appropriate units (e.g., in case of bus company, total number of passenger/kms.) and cost per unit of service is calculated.
9. Departmental Costing
The ascertainment of the cost of output of each department separately is the objective of departmental costing. In case where a factory is divided into a number of departments, this method is adopted.
10. Multiple Costing (Composite Costing)
Under this system, the costs of different sections of production are combined after finding out the cost of each and every part manufactured. The system of ascertaining cost in this way is applicable where a product comprises many assailable parts, e.g., motor cars, engines or machine tools, typewrite$, radios, cycles etc.
As various components differ from each other in a variety of ways such as price, materials used and manufacturing processes, a separate method of costing is employed in respect of each component. The type of costing where more than one method of costing is employed is called multiple costing.
It is to be noted that basically there are only two methods of costing viz. job costing and process costing. Job costing is employed in cases where expenses are traceable to specific jobs or orders, e.g., house building, ship building etc. In case where it is impossible to trace the prime cost of the items for a particular order because of the reason that their identity gets lost while manufacturing operations, process costing is used. For example, in a refinery where several tons of oil is being produced at the same time, the prime cost of a specific order of 10 tons cannot be traced. The cost can be found out only by finding out the cost per ton of total oil produced and then multiplying it by ten.
It may, therefore, be concluded that the methods of batch contract and cost plus costing are only the variants of job costing whereas the methods of unit, operation and operating costing are the variants of process costing.

Cost Concepts

Basic Cost Concepts
Learning Objectives
 To understand the meaning of different costing terms
 To understand different costing methods
 To have a basic idea of different costing techniques
 To understand the meaning of cost sheet
In order to determine and take a dispassionate view about what lies beneath the surface of accounting figures, a financial analyst has to make use of different management accounting techniques. Cost techniques have a precedence over the other techniques since accounting treatment of cost is often both complex and financially significant. For example, if a firm proposes to increase its output by 10%, is it reasonable to expect total cost to increase by less than 10%, exactly 10% or more than 10%? Such questions are concerned with the cost behavior, i.e. the way costs change with the levels of activity. The answers to these questions are very much pertinent for a management accountant or a financial analyst since they are basic for a firm’s projections and profits which ultimately become the basis of all financial decisions. It is, therefore, necessary for a financial analyst to have a reasonably good working knowledge about the basic cost concepts and patterns of cost behavior. All these come within the ambit of cost accounting.
Meaning of Cost Accounting
Previously, cost accounting was merely considered to be a technique for the ascertainment of costs of products or services on the basis of historical data. In course of time, due to competitive nature of the market, it was realized that ascertaining of cost is not so important as controlling costs. Hence, cost accounting started to be considered more as a technique for cost control as compared to cost ascertainment. Due to the technological developments in all fields, cost reduction has also come within the ambit of cost accounting. Cost accounting is, thus, concerned with recording, classifying and summarizing costs for determination of costs of products or services, planning, controlling and reducing such costs and furnishing of information to management for decision making.
According to Charles T. Horngren, cost accounting is a quantitative method that accumulates, classifies, summarizes and interprets information for the following three major purposes:
 Operational planning and control
 Special decisions
 Product decisions
According to the Chartered Institute of Management Accountants, London, cost accounting is the process of accounting for costs from the point at which its expenditure is incurred or committed to the establishment of the ultimate relationship with cost units. In its widest sense, it embraces the preparation of statistical data, the application of cost control methods and the ascertainment of the profitability of the activities carried out or planned.
Cost accounting, thus, provides various information to management for all sorts of decisions. It serves multiple purposes on account of which it is generally indistinguishable from management accounting or so-called internal accounting. Wilmot has summarized the nature of cost accounting as “the analyzing, recording, standardizing, forecasting, comparing, reporting and recommending” and the role of a cost accountant as “a historian, news agent and prophet.” As a historian, he should be meticulously accurate and sedulously impartial. As a news agent, he should be up to date, selective and pithy. As a prophet, he should combine knowledge and experience with foresight and courage.
Objectives of Cost Accounting
The main objectives of cost accounting can be summarized as follows:
1. Determining Selling Price
Business enterprises run on a profit-making basis. It is, thus, necessary that revenue should be greater than expenditure incurred in producing goods and services from which the revenue is to be derived. Cost accounting provides various information regarding the cost to make and sell such products or services. Of course, many other factors such as the condition of market, the area of distribution, the quantity which can be supplied etc. are also given due consideration by management before deciding upon the price but the cost plays a dominating role.
2. Determining and Controlling Efficiency
Cost accounting involves a study of various operations used in manufacturing a product or providing a service. The study facilitates measuring the efficiency of an organization as a whole or department-wise as well as devising means of increasing efficiency.
Cost accounting also uses a number of methods, e.g., budgetary control, standard costing etc. for controlling costs. Each item viz. materials, labor and expenses is budgeted at the commencement of a period and actual expenses incurred are compared with budget. This greatly increases the operating efficiency of an enterprise.
3. Facilitating Preparation of Financial and Other Statements
The third objective of cost accounting is to produce statements whenever is required by management. The financial statements are prepared under financial accounting generally once a year or half-year and are spaced too far with respect to time to meet the needs of management. In order to operate a business at a high level of efficiency, it is essential for management to have a frequent review of production, sales and operating results. Cost accounting provides daily, weekly or monthly volumes of units produced and accumulated costs with appropriate analysis. A developed cost accounting system provides immediate information regarding stock of raw materials, work-in-progress and finished goods. This helps in speedy preparation of financial statements.
4. Providing Basis for Operating Policy
Cost accounting helps management to formulate operating policies. These policies may relate to any of the following matters:
o Determination of a cost-volume-profit relationship
o Shutting down or operating at a loss
o Making for or buying from outside suppliers
o Continuing with the existing plant and machinery or replacing them by improved and economic ones
Concept of Cost
Cost accounting is concerned with cost and therefore is necessary to understand the meaning of term cost in a proper perspective.
In general, cost means the amount of expenditure (actual or notional) incurred on, or attributable to a given thing.
However, the term cost cannot be exactly defined. Its interpretation depends upon the following factors:
• The nature of business or industry
• The context in which it is used
In a business where selling and distribution expenses are quite nominal the cost of an article may be calculated without considering the selling and distribution overheads. At the same time, in a business where the nature of a product requires heavy selling and distribution expenses, the calculation of cost without taking into account the selling and distribution expenses may prove very costly to a business. The cost may be factory cost, office cost, cost of sales and even an item of expense. For example, prime cost includes expenditure on direct materials, direct labor and direct expenses. Money spent on materials is termed as cost of materials just like money spent on labor is called cost of labor and so on. Thus, the use of term cost without understanding the circumstances can be misleading.
Different costs are found for different purposes. The work-in-progress is valued at factory cost while stock of finished goods is valued at office cost. Numerous other examples can be given to show that the term “cost” does not mean the same thing under all circumstances and for all purposes. Many items of cost of production are handled in an optional manner which may give different costs for the same product or job without going against the accepted principles of cost accounting. Depreciation is one of such items. Its amount varies in accordance with the method of depreciation being used. However, endeavor should be, as far as possible, to obtain an accurate cost of a product or service.
Elements of Cost
Following are the three broad elements of cost:
1. Material
The substance from which a product is made is known as material. It may be in a raw or a manufactured state. It can be direct as well as indirect.
a. Direct Material
The material which becomes an integral part of a finished product and which can be conveniently assigned to specific physical unit is termed as direct material. Following are some of the examples of direct material:
 All material or components specifically purchased, produced or requisitioned from stores
 Primary packing material (e.g., carton, wrapping, cardboard, boxes etc.)
 Purchased or partly produced components
Direct material is also described as process material, prime cost material, production material, stores material, constructional material etc.
b. Indirect Material
The material which is used for purposes ancillary to the business and which cannot be conveniently assigned to specific physical units is termed as indirect material. Consumable stores, oil and waste, printing and stationery material etc. are some of the examples of indirect material.
Indirect material may be used in the factory, office or the selling and distribution divisions.
2. Labor
For conversion of materials into finished goods, human effort is needed and such human effort is called labor. Labor can be direct as well as indirect.
a. Direct Labor
The labor which actively and directly takes part in the production of a particular commodity is called direct labor. Direct labor costs are, therefore, specifically and conveniently traceable to specific products.
Direct labor can also be described as process labor, productive labor, operating labor, etc.
b. Indirect Labor
The labor employed for the purpose of carrying out tasks incidental to goods produced or services provided, is indirect labor. Such labor does not alter the construction, composition or condition of the product. It cannot be practically traced to specific units of output. Wages of storekeepers, foremen, timekeepers, directors’ fees, salaries of salesmen etc, are examples of indirect labor costs.
Indirect labor may relate to the factory, the office or the selling and distribution divisions.
3. Expenses
Expenses may be direct or indirect.
a. Direct Expenses
These are the expenses that can be directly, conveniently and wholly allocated to specific cost centers or cost units. Examples of such expenses are as follows:
 Hire of some special machinery required for a particular contract
 Cost of defective work incurred in connection with a particular job or contract etc.
Direct expenses are sometimes also described as chargeable expenses.
b. Indirect Expenses
These are the expenses that cannot be directly, conveniently and wholly allocated to cost centers or cost units. Examples of such expenses are rent, lighting, insurance charges etc.
4. Overhead
The term overhead includes indirect material, indirect labor and indirect expenses. Thus, all indirect costs are overheads.
A manufacturing organization can broadly be divided into the following three divisions:
o Factory or works, where production is done
o Office and administration, where routine as well as policy matters are decided
o Selling and distribution, where products are sold and finally dispatched to customers
Overheads may be incurred in a factory or office or selling and distribution divisions. Thus, overheads may be of three types:
d. Factory Overheads
They include the following things:
 Indirect material used in a factory such as lubricants, oil, consumable stores etc.
 Indirect labor such as gatekeeper, timekeeper, works manager’s salary etc.
 Indirect expenses such as factory rent, factory insurance, factory lighting etc.
e. Office and Administration Overheads
They include the following things:
 Indirect materials used in an office such as printing and stationery material, brooms and dusters etc.
 Indirect labor such as salaries payable to office manager, office accountant, clerks, etc.
 Indirect expenses such as rent, insurance, lighting of the office
f. Selling and Distribution Overheads
They include the following things:
 Indirect materials used such as packing material, printing and stationery material etc.
 Indirect labor such as salaries of salesmen and sales manager etc.
 Indirect expenses such as rent, insurance, advertising expenses etc.
Elements of Cost
o Direct material
o Direct labor
o Direct expenses
o Overheads
o Factory overheads
o Selling and distribution overheads
o Office and administration overheads
o Indirect material
o Indirect labor
o Indirect expenses
o Indirect material
o Indirect labor
o Indirect expenses
o Indirect material
o Indirect labor
o Indirect expenses
Components of Total Cost
1. Prime Cost
Prime cost consists of costs of direct materials, direct labors and direct expenses. It is also known as basic, first or flat cost.
2. Factory Cost
Factory cost comprises prime cost and, in addition, works or factory overheads that include costs of indirect materials, indirect labors and indirect expenses incurred in a factory. It is also known as works cost, production or manufacturing cost.
3. Office Cost
Office cost is the sum of office and administration overheads and factory cost. This is also termed as administration cost or the total cost of production.
4. Total Cost
Selling and distribution overheads are added to the total cost of production to get total cost or the cost of sales.

1:Marketing Definition:

The Chartered Institute of Marketing
‘Marketing is the management process that identifies, anticipates and satisfies customer requirements profitably’
Kotler 1980 says
Marketing is the human activity directed at satisfying human needs and wants through an exchange process’
Kotler 1991
‘Marketing is a social and managerial process by which individuals and groups obtain what they want and need through creating, offering and exchanging products of value with others’
Objectives
Understand the new economy.
Learn the tasks of marketing.
Become familiar with the major concepts and tools of marketing.
Understand the orientations exhibited by companies.
Learn how companies and marketers are responding to new challenges.
The New Economy:
Consumer benefits from the digital revolution include:
Increased buying power.
Greater variety of goods and services.
Increased information.
Enhanced shopping convenience.
Greater opportunities to compare product information with others.
Firm benefits from the digital revolution include:
New promotional medium.
Access to richer research data.
Enhanced employee and customer communication.
Ability to customize promotions.
Marketing Defined:
Kotler’s Social Definition:
“Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others.”
The AMA Managerial Definition:
“Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.”
Core Marketing Concepts
Target markets and market segmentation
Marketplace, market-space, metamarkets
Marketers & prospects
Needs, wants, demands
Product offering and brand
Value and satisfaction
Exchange and transactions
Relationship and networks
Marketing channels
Supply chain
Competition
Marketing environment
Marketing program
Target markets & segmentation
Differences in needs, behavior, demographics or psychographics are used to identify segments.
The segment served by the firm is called the target market.
The market offering is customized to the needs of the target market.
Needs describe basic human requirements such as food, air, water, clothing, shelter, recreation, education, and entertainment.
Needs become wants when they are directed to specific objects that might satisfy the need. (Fast food)
Demands are wants for specific products backed by an ability to pay.
A Product is any offering that can satisfy a need or want, while a brand is a specific offering from a known source.
When offerings deliver value and satisfaction to the buyer, they are successful.
Marketers can enhance the value of an offering to the customer by:
Raising benefits.
Reducing costs.
Raising benefits while lowering costs.
Raising benefits by more than the increase in costs.
Lowering benefits by less than the reduction in costs.
Exchange involves obtaining a desired product from someone by offering something in return. Five conditions must be satisfied for exchange to occur.
Transaction involves at least two things of value, agreed-upon conditions, a time of agreement, and a place of agreement.
Relationship marketing aims to build long-term mutually satisfying relations with key parties, which ultimately results in marketing network between the company and its supporting stakeholders.
A supply chain stretches from raw materials to components to final products that are carried to final buyers.
Each company captures only a certain percentage of the total value generated by the supply chain.