Index IntroductionProcter & GambleActivity-Based CalculationStandard CostingP&G and the FutureConclusionIntroductionTide, Old Spice, Crest, Ivory, Swiffer. It is likely that most consumers in the United States and the rest of the Western world have heard of these brands and associate them with specific types of products. Procter & Gamble is one of the world's leading conglomerates. With products ranging from baby shampoo to deodorant to cough drops, the consumer goods company has brands that are marketed globally. This makes the company an interesting case study in the discussion of cost accounting, particularly in relation to the global economic environment. Since the company has operations, brands and marketing campaigns around the world, it is critical that the company evaluates the most efficient means of accounting for costs across all of its operations in order to remain effective in the global business environment. The cost accounting approach for Procter & Gamble is the main focus of this research paper. More specifically, the paper examines activity-based costing and standard costing as it relates to Procter & Gamble's operations and evaluates how the company might (or might not) benefit from each cost model. Overall, the paper argues that Procter & Gamble would benefit from using the standard cost model in manufacturing and its day-to-day operations, due to potentially large differences in overheads between its various holdings, and would benefit from cost-based costing. activities in its various companies. human services operational areas, such as marketing, research and development, due to changes in costs and productivity. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay This is a qualitative research project, basing the discussion of cost models on existing academic research and primary research of data and numbers relevant to Procter & Gamble. The research presented in this article comes from a wide range of sources, ranging from the OECD to academic journals to Procter & Gamble itself. Combining these sources allows for a holistic discussion of both how various cost models work and how they relate to Procter & Gamble's operations. In other words, the available data for Procter & Gamble will be evaluated using the two cost models identified above. The document combines academic sources on cost models with primary numbers and data from Procter & Gamble to inform the discussion, ultimately forming an original synthesis of information for discussion. As mentioned above, this is a qualitative approach, but it also uses quantitative numbers relating to the past and expected performance of this international consumer goods conglomerate. To understand the context of this discussion, the document first looks at an overview of the company, including key goods and services, market share, geographic locations and key competitors. These details will be revisited during the discussion. Secondly, the paper presents an overview of activity-based costing and how Procter & Gamble could benefit from this model, including details on how costs could be restructured within the company using activity-based costing. Third, the paper discusses standard costs and how best to apply them at Procter & Gamble. As with the discussion of activity-based costing, this section includes both the rationale for using standard costing and the ramificationsof using this model. Finally, the article turns to the future of Procter & Gamble; More specifically, the paper examines how the company could benefit from analyzing future projects in terms of relevant costs. Future plans here include expansion into other geographic regions and consolidation of the company. All three of these main topics are discussed in relation to the international business environment, since Procter & Gamble is an international company and is directly affected by changes in this environment. In other words, since Procter & Gamble depends on its international operations, it is critical to consider how the two cost models work towards efficiency in this specific context. This is not intended to be an exhaustive account of the advantages and disadvantages of each cost accounting model; rather, it is simply an application of these models to Procter & Gamble's operations. Overall, the research paper shows that Procter & Gamble can benefit from increasing efficiency and reducing overhead in the international business environment by using the standard cost model, mainly due to its static nature across geographic regions . Procter & Gamble As mentioned above, Procter & Gamble is one of the leading consumer goods conglomerates in the world. This year the company turns almost 180 years old. According to the President and CEO, “A company doesn't last as long if its management is unwilling to change anything and everything except its purpose and core values ​​to serve consumers and create shareholder value” (P&G , 2015, 2). In other words, Procter & Gamble seemingly finds its success and increased value in a willingness to adapt everything from research and development to pricing strategies in the face of a changing global business environment. The focus of this document is on what these changes have been like and how the company can continue to change in the future. According to the company's annual report, the next few years will see Procter & Gamble “execute the strategies and capabilities to transform Procter & Gamble into a faster-growing, more profitable, and much simpler company” (P&G, 2015, 2 ). This is an important context to consider with a discussion of activity-based costing, standard costing, and the future of Procter & Gamble in light of the current global economic environment. But what does Procter & Gamble look like now? To create context, this short section evaluates the company's main goods and services, market share, geographic location of its operations, and its major competitors. According to Procter & Gamble's website, the company manufactures and distributes consumer products in what it calls its "ten core categories": they include baby care, women's care, family care, personal care, oral care, personal health care, hair care, skin and personal care, fabric care, and home care (Procter & Gamble, 2016, np). It is understood that the main focus of the company is consumer care products. As mentioned above, Procter & Gamble brands include familiar names like Tide, Pampers, and Gillete. Their products also include new brands based on recent research and development, such as the Unstoppable collection of perfumes and scented products (Procter & Gamble, 2015, 4). Overall, Procter & Gamble has over 300 brands (Warren, 2012, np). Perhaps more importantly, the company also has a global reach with operations in 180 countries (Warren, 2012, np). Procter & Gamble's sales and market operations are divided into six specific regions: Asia Pacific, Europe, Greater China, India, Middle East and Africa, Latin America and North America. With this, it is clearthat Procter & Gamble is successful all over the world and in almost every country. The company's market share varies depending on the subcategory of care its products fall into. However, according to a company report, Procter & Gamble's average market share of all its products is 30% of the consumer goods market (Reuters, 2016, np). In this way, Procter & Gamble is the second most profitable consumer goods conglomerate in the world, surpassed only by Nestlé (Wheelen, Hunger, Hoffman & Bamford, 2015, p. 336). However, the company has its share of competitors – after all, it does not control the entire consumer goods market. Competitors vary depending on the market segment in which Procter & Gamble operates. Perhaps the company's most direct competitors include Unilever and Johnson & Johnson, both of which operate in most of Procter & Gamble's consumer goods segments, including textiles, baby, women's, household, and home goods (CSI, 2016, np). Secondary competitors include Avon and Colgate-Palmolive in the personal care and beauty space. Nestlé is not a direct competitor as it focuses on other market segments, such as food and beverages. Now that the document has established Procter & Gamble's major assets, market share, geographic locations, operations, and major competitors, we can move on to a more detailed evaluation and application of activity-based costing and standard costing in the context of the global business environment. Activity-based costingActivity-based costing is an alternative strategy for accounting for costs in a business. Standard accounting, as discussed below, simply relates overhead expenses to direct costs. In contrast, activity-based costing “is a method of assigning costs to products or services based on the resources they consume,” with the goal of changing the way “costs are counted” (Economist, 2009, np ). The result is more complex, but seemingly more accurate cost accounting. An example is a mass-produced industrial robot as opposed to a customized one. According to standard costs, the two different types have the same amount of direct costs, since they use the same amount of materials and labor. However, a custom robot requires much more time from the company's engineers, which represents an overhead. Activity-based costing takes this additional overhead into account. Activity-based costing is not a new development, having been around for thirty years (Turney, 2015, 1). Now, activity-based costing fuels “performance measures for scorecards, providing rates for customer profitability analysis, helping to devise human resources plans, modeling sustainability, and supporting budget development and planning” (Turney , 2015, 1). In other words, activity-based costing can be very beneficial for larger companies with global operations. While often difficult to implement, many companies did so as pilot programs in the 1980s, 1990s, and early 2000s. Benefits include more accurate data, inclusion of overhead costs, and relevance to service organizations , for which traditional costs are irrelevant (Geri & Ronen, 2005, 135). Despite its advantages, some analysts have shown that activity-based costing does not deliver all it promises, stating that from a “global value creation perspective” the costing model has failed because “not many companies maintain it beyond a short pilot period". (Geri & Ronen, 2005, 133). Some of the weaknesses of activity-based costing include that it is “based on arbitrary subjective cost allocations,” that it “ignores constraints, and does notdifferentiates a bottleneck from resources with excess capacity” and which “concerns the relationship between activities and resource consumption as linear, absolute, and certain” (Geri & Ronen, 2005, 135). In other words, although activity-based costing can provide more accurate data, it is often not pragmatic to implement this new costing model. It is worth examining these issues in detail, as well as how they apply to Procter & Gamble and its global operations and accounting. First, it is difficult to develop uniform cost allocations across many different subdivisions and operations. Second, activity-based costing does not take into account various production constraints, nor how to handle products with excess capacity, as noted above. Finally, it oversimplifies the relationship between tasks and resources. For these reasons, this paper argues that Procter & Gamble would not benefit in the long term from using activity-based costing. Using this cost model would simultaneously oversimplify the relationship between the company's activities and its costs, while at the same time complicating accounting in a company that already has many different forms of business around the world. More specifically, the ramifications of implementing activity-based costing in the international business environment would be overly complicated and not necessarily worth the effort in the long term. In the 1990s, Procter & Gamble “made some significant changes to its business strategy; aimed to reduce the cost structure and develop a differentiated business strategy in an effort to increase revenues and profits” (Warren, 2012, np). More specifically, the company “implemented a hybrid organizational structure that considered the geographic dispersion of multiple markets, respective specialization for particular brands and specializations, and economies of scale in particular value-creation functions” (Warren, 2012, np). In other words, Procter & Gamble adapted its operations to the global economic environment without having to radically change its cost accounting structure, which would have been unnecessarily time-consuming and expensive. Procter & Gamble has managed to maintain its nearly one-third share of the consumer goods market by standardizing its accounting but adding flexibility to its corporate structure. In short, implementing activity-based costing in the international business environment would overcomplicate Procter & Gamble's operations and could lead to inconsistencies in its reporting. As one source states, the use of activity-based costing “is especially important for companies that provide customized products or services” (Rojas, 2015, np). Since Procter & Gamble does not provide such products or services, but has instead standardized manufacturing processes around the world for its hundreds of individual products, attempting to implement activity-based costing across all of its operations would essentially be a waste of time and a costly commitment. as the best case scenario. The worst case scenario would be misinterpretation of data and, as a result, inaccurate external reporting. Procter & Gamble should instead continue to focus on its efforts to build agility and profitability into its business structure and strategy, leaving cost accounting to traditional methods. For example, Procter & Gamble's 2015 annual report states that the company "cannot ensure consistent, reliable growth and value creation without continuous productivity improvement" and as a result the company is "focusing on a number fewer priorities and activities” which “is driving cost reductionoverhead, cost of goods sold, marketing and sales expenses” (P&G, 2015, 4). Therefore, the main reason why Procter & Gamble should not implement activity-based costing is that this is unnecessary in light of the company's other efforts. Instead, the alternative standard cost model is discussed below. Standard Costs Unlike activity-based costing discussed above, the standard cost model aims to identify the underlying costs for the following year's budget. More specifically, a standard cost is the “predetermined cost of producing a single unit or number of units of product during a specific period in the immediate future” (McKay, 2015, np). These apparently provide “a good measure against which to manage the business during the following financial year” (CIMA, 2010, 1). The direct benefit of booth cost is that it meets regulatory requirements for external reporting, management and performance. As one report states, companies “use standard costs and variances to value inventory for statutory purposes, for management reporting purposes, and for performance measurement and management” (CIMA, 2010, 1). In other words, the standard cost model satisfies both a company's regulatory and strategic requirements. This is especially important in the international business environment, as regulations and requirements vary by country and region. While activity-based costing is only useful for an internal strategic audit, standard costing is useful for streamlined accounting and relevant external reporting. In this way, this article argues that Procter & Gamble could benefit – and has benefited – from using standard costs. But what are the consequences of Procter & Gamble's use of this model in the international economic context? This specific question will be discussed below. Using the standard cost model has several advantages. The main advantage of the standard cost model has already been identified above, namely that it satisfies both internal and external strategic and regulatory requirements. However, the secondary benefit of standard costing (sometimes called traditional costing) is that it more accurately reflects costs, quantities, and variances. More specifically, standard costing “divides costs into variable and fixed categories” (Rasiah, 2011, 87). To be useful to a business, cost systems “require a specific type of information such as direct labor hours and units produced” (Rasiah, 2011, 83). Standard costing provides specific accounting for factors such as labor hours and units produced, while activity-based costing focuses on the specific activities put in place in operations to achieve these factors. Thus, activity-based costing does not distinguish between variable costs and fixed costs. The model relates costs as a whole only to the activity that generated them and evaluates productivity and strategy from this point of view. In contrast, the standard cost model not only reflects actual costs, but also evaluates these costs in terms of quantities of products (i.e. which hours of labor or industrial robots are more productive relative to their cost) and cost variations. Since Procter & Gamble's operations primarily involve manufacturing and distribution logistics, the standard cost approach makes more sense, as the company's operations can be automated and standardized across the world. Therefore, this paper recommends standard cost in most of Procter & Gamble's operations as the primary factor for decision making, especially in the manufacturing sector. More specifically, many argue that "the standard cost should beused as an indicator or measure for… inventory valuation, performance management, factory efficiency, product sourcing, one-off contract pricing decisions, and overall pricing decisions” (CIMA, 2010, 3). However , it is important to note that although “standard costs remain an important part of any decision-making tool”, they should be used as “the whole answer” (CIMA, 2010, 3). Activity-based costing may make sense to some aspects of Procter & Gamble's corporate structure. In the international business environment, it may make sense to implement activity-based costs for marketing, research and development in the company. This is based on two main factors: first, based costs on assets are more advantageous for service industries and human capital-intensive businesses, and secondly because asset-based costing can be expensive both to start and maintain. While automation and manufacturing may remain the same around the world, the state of the international business environment means that marketing, research and development, and even management will vary from region to region. For this reason, Procter & Gamble may consider using activity-based costing on a limited basis, in those areas where it would be most beneficial (such as marketing and research and development), but maintain a standard cost model in its operations daily and manufacturing.P&G and FutureA final point to evaluate in this document is how Procter & Gamble can benefit from analyzing future projects in terms of relevant costs and in the context of the international business environment. In the case of Procter & Gamble, these future plans include both expansion of operations and products and consolidation of the corporate structure. In both cases, Procter & Gamble should benefit from the primary implementation of standard costs, except for the cases already discussed above. This is an important topic to discuss, as companies (such as Procter & Gamble) that have a global focus on performance and production may struggle organizationally in the face of a changing global business environment. As a McKinsey & Co report states, “high-performing global companies have consistently scored lower than more locally focused ones on several dimensions of organizational health” (Dewhurst, Harris & Heywood, 2012, np). This has been called the “globalization penalty” (Dewhurst, Harris & Heywood, 2012, np). Procter & Gamble's 2015 annual report also acknowledged this negative impact: “Fiscal 2015 was a challenging year due to the weakening economy of developing markets and the unprecedented negative impact of foreign exchange ,” with organic sales growing just 1% that year. (P&G, 2015, 1). Given the relatively detrimental impact the changing international business environment has had on Procter & Gamble in recent years, how can it adapt its future plans in terms of material costs? First, Procter & Gamble should consider its expansion efforts in terms of the standard costs that these efforts might entail. According to the same McKinsey & Co report cited above, the growth of global companies is directly related to the increase in complexity costs (Dewhurst, Harris & Heywood, 2012, np). More specifically, “Emerging markets complicate matters, as operations located there sometimes struggle with the costs they must bear as part of a group centered in the developed world: their share in the spread of distant corporate and regional centers, the cost of complying with global regulatory standards and coordination.