HERO HONDA

May 27

2011MANAGEMENT ACCOUNTING IS A NUMEROUS KINDS OF TECHNIQUES TO EVALUATE AND ANALYSE THE WORKING OF AN ORGANISATION IN AN APPROPRIATE MANNER AND TO USE ALL THE RESOURCES IN A MANNER TO GAIN HIGH PROFITS.

MANAGEMENT ACCOUNTING

NAME: - NAVNEET LALIT GOYAL

STUDENT ID – 1031512

COHORT – 7

CAMPUS – PUTTERIDGE BURY

SUBMITTED TO: - Mr. ARTHUR DYIRA

TABLE OF CONTENTS

INTRODUCTION

BACKGROUND OF THE COCA-COLA

PRODUCTS OF THE COCA-COLA

COMPETITORS IN THE MARKET

PROCESS OF MANUFACTURING

COMPANY POLICES

MANAGEMENT ACCOUNTING

ANALYSIS OF MANAGEMENT ACCOUNTING TECHNIQUES

CONCLUSION

REFRENCES

BACKGROUND OF HERO HONDA

Hero Honda Motors Ltd. Is the world’s largest manufacturer of two – wheelers, based in India. The company is a joint venture between India’s Hero group and Honda Motors Company, Japan that was formed in 1984. In 2001, this company achieved the position of India’s largest two wheeler company and the World’s no. 1 in the terms of unit volume sales in a calendar year by a single company and till the date this company has retained its position. In India, every second a Hero Honda bike is delivered to its prestigious customers (every second = till the operating time of Dealerships).

This company’s growth in the two wheeler segment in India is because of an intrinsic ability to increase new geographies and growth markets. This company has always given the customers what they wanted by keeping in mind the demand of customers. As there is a saying, “If demand is there, Supply has to be there”, so the company has always understood the demand and fulfilled it to reach at this level.

This company launches many events to promote and highlight their product like by organizing games on national levels, sponsoring world cricket and much more for branding and to achieve their vision.

PRODUCTS

Hero Honda has a variety of products in its range of motorcycles that have set a new path breaking record across all the market segments. The company had also started manufacturing gearless scooters for women in 2006. Hero Honda offers many services to customers besides selling the motorcycles; it gives them the service, spare parts and warranty for their product through authorized dealerships, service and spare parts outlets and much more.

PROCESSES

The company is a manufacturing unit and a very large enterprise so it cannot directly sell the products to customers. There are appointed dealers in the country which are authorized to sell their products by them. In the manufacturing process, the raw material or the finished parts to make the motorcycles are gathered in the assembly line and it has to be monitored regularly in order to provide sufficient material for a day so that the manufacturing does not stop due to this reason. An efficient team has been assigned to keep a check on this which includes the dealing with vendors and other manufacturing key areas.

The main process is to deliver the bikes to the dealers as per there requirement, by making a monthly plan of all dealers which sums up to more than 750 dealerships across country. Every dealer received the products in their showrooms by giving an advance payment to the company.

There is lots of hard work and there are also many workshops conducted to motivate the dealers in order to achieve specified goals.

COMPETITORS

Hero Honda is the top ranking company throughout the country but its main competitor which turned out recently is Bajaj. Bajaj previously dealt in scooters but in the last few years this company had started manufacturing motorcycles. Competition does not means that Bajaj is leading; it means that it affects the sales of Hero Honda. There are more competitors like Yamaha, Suzuki, Royal Enfield, Honda (HMSI) but the market share of Hero Honda is more than 53 % and Bajaj has 30 % and the rest of it for various companies.

POLICIES

Every company or an organization has its own policies and work ethics. Hero Honda is all about a commitment to a customer, quality and excellence which is achieved by maintaining the highest standards of ethics and societal responsibilities. The key Policies of Hero Honda is as follows:-

To integrate environmental attributes by practicing the substitutions of hazardous chemicals.

Innovation in products processes and services. Teamwork and responsibility. To ensure safety and health matters in all the activities performed.

Mr. Brijmohan Lall Munjal the worthy Chairman has a famous quote about their policies “We must do something for the community from whose land we generate our wealth”.

Management Accounting

Management accounting is a process to prepare management reports and accounts which provide the accurate and timely financial and statistical information required by managers for daily and short term decisions.

There are many definitions to define this term, according to the Chartered Institute of Management Accountants (CIMA), Management accounting is a technique used to identify, measure, accumulate, analyze, preparation, interpretation of information used by management to involve in the control of entity and to ensure the appropriate use of all the available resources.

According to the Institute of Management Accountants (IMA) the management accounting is a profession which includes decision making, devising planning and performance management systems and to provide with their expert reports in order

to achieve a smooth running of an organization and the techniques which should be followed to ensure the maximum profits.

There are many techniques used in the management accounting. These techniques includes the information about how to implement them, why to implement them and how to follow them on a regularly basis.

We will talk about the techniques needed to be used in this company as every organization is different from each other. These techniques are referred after an analysis of the company, about its operations and work ethics.

TECHNIQUES

MARGINAL COSTING

It is the change in the total cost which arises when the quantity produced change by one unit. So it is the cost of producing one more unit of a good. The size of a marginal cost will change with volume if the product being manufactured is

infinitely divisible.

Cost Volume Profit Analysis (CVP)

It shows the effect of change in the company’s operating income. CVP is a very simple model useful for elementary instruction and for short and quick decision making. The main part of CVP analysis is the point where the total revenues

equal total costs. A breakeven analysis is needed to provide the information for CVP analysis. It can be calculate as:

Contribution / sales * 100 = PV ratio (Profit volume ratio)

Breakeven Point

It is a level of activity where an organization is neither earning profit and nor loss. It is an important process to initiate because it tells us to know that how much sales is required to earn profit. It can be calculated in units and currency also.

In Units: - Fixed costs / Contribution per unit

In currency: - Total fixed cost / Total contribution.

Margin of Safety

It is a level where the actual sale arises and exceeds the breakeven point. A good level of margin of safety indicates that the business is secure.

Margin of safety = Actual sale – Break even sale.

BUDGETING

Budget is a list of all planned expenses and revenues. It is a plan where the money is saved from unnecessary expenses and used in a proper manner. A budget is the most important process for an organization as it gives us the futuristic way to ensure the safety of business. In such organizations budget is prepared after a detailed view of many things like

1. Sales 2. Production3. Cash flow4. Marketing5. Projects6. Revenue7. Expenditure8. Salaries and wages

TECHNIQUES APPLIED TO MANAGEMENT OF HERO HONDA

COST VOLUME PROFIT AND MARGINAL COST ANALYSIS

As told earlier that this company is engaged in manufacturing which produces different models with different specifications so the sale of all their products is very necessary for this company to survive in such hostile environment. Individual approach to every product is present so the policies needed to implement vary for such companies. An analysis should be done to see the performance of each product and to increase or decrease its manufacturing according to the needs of their consumers or market. The Profit volume ratio is helpful in getting the profitability of the product. Hero Honda is manufacturing more than 13 models so that this company should use this approach to make decisions easy and fast where the results are also very reliable. The Break even analysis in CVP and MC shows the level of activity at which the company starts earning profit so this approach is recommended to the company.

BUDGETING

As discussed above, this technique is to plan all the expenditures to be incurred by the company in future. Basically, the budget is prepared yearly but some companies make it on Quarterly basis also. While reading the company’s financial statements this company is not able to achieve its planned budget so it has to be taken care while preparing the budget that all the necessary expenditures are noted down from the past and the new budget should be prepared while analyzing the previous financial statements. This company is spending millions on advertising and it increases the company’s brand image.

Like, this company is going to start a new project to start a new manufacturing unit so they should check their budget accordingly so that their current situation of business which is on positive side does not gets affected. This company gets advance payments from their dealers and they should keep in mind that their budgetary information has a direct link with their budget too, so all the things should be kept in mind because in the end of financial year, their decreased performance will affect their shares and will give a positive impact to their competitors.

CONCLUSION

The major weakness of our analysis is that we do not have the financial data for the company to analyze and to support our analysis. The analysis showed that this company will need some more capital towards the building up of new manufacturing plant and it may change its whole budget properties. So, if the data was present then the actual picture could be given in order to improve the budgetary information of report.

Although, after using the management accounting we found out new and innovative ideas to keep the business running smoothly and to continue rising in this hostile environment.