In my working life I have had a number of jobs. You could
say I have rather wide and varied job experience. So much so it is quite
difficult to place them all on my resume. I look at what I have done and try to
figure out what to place on my resume by researching the business I am applying
to, and try to evaluate from my experiences which jobs I have done that I have
gained relevant knowledge. Then my resume will reflect the knowledge deemed
relevant to that business. In a small way I am trying to show to the employer
what value my service can add to the employer. After all they are incurring
cost for the knowledge I possess. And the right person is the prospective
employee that will assist in increasing the firms profit in regard to the cost
out layed, because of the knowledge they can offer the firm. In a very basic
level this is a key cost relationship.
One job that I had was working as a new vehicle sales person
for a business offering the Hyundai (pronounced He-un-day) product range. I
started this job in 1994. Unbeknown to me the job timing was correct. Hyundai
was a very small player in the market at that time. And the firm I was working
for were beginning to question their franchise agreement as the profit was not
as good as Hyundai had promised. However, this was all about to change. In 1994
Hyundai Korea paid for 1 Manager and 1sales person from each franchise in
Australia to visit the ULSAN Hyundai manufacturing plant in South Korea. I was
the Sales person chosen to attend (Lucky hey?). The trip was all expenses paid
(even our food). A huge outlay for
Hyundai as it was not only Australia they were doing this for, but for every
nation that sold the Hyundai product range. What was the value in this? Well
Hyundai was about to launch the all new Hyundai Excel and Lantra range (as
called in Australia). What I saw there just blew my mind. Hyundai manufacture
almost everything they place in the final product of the vehicle, in fact the
only thing they do not manufacture is the tyres; however, Hyundai’s investment
share in Kumho tyres is huge.
We were taken through every aspect of the finished product
and were introduced to many people (one thing I learnt that if you say Mr Kim
to any Korean 9/10 times you will be right). From Projects to planning,
development to manufacturing. Ulsan is huge, in fact, is one of the largest and
busiest ports in the world. All built by Hyundai. The area is the highest
contributing GDP of the nation. We were also shown the Oil refinery, of which
is also one of the largest in the world. All the workers live in the
surrounding housing, and all built and owned by Hyundai. To say I was awestruck
is an understatement. And I could not help but think about the cost of
operations was for Hyundai. They even build and staff the huge Ship carriers
that transport the vehicles all around the world. And what blew me away was the
realisation that all of it would cease if vehicles or other products were not
sold. That is why Hyundai payed so much for bringing so many people there. It
showed me that on the scale of my operation that 1 car may not seem much, but
to Hyundai it is everything, it is the only way they can redeem cost. Also we
were sold on the viability of the new product range, which Hyundai assured us
was going to transform the car manufacturers standing in the vehicle production
world. And they were not wrong, the Hyundai excel went on to be the best
selling small car in Australia for 3 years. I sold a lot of vehicles during
that period, and also assisted me in becoming a Sales manager.
As I reflect
back upon this in relation to this course I now realise the risk Hyundai made.
The cost of producing the new Excel and Lantra range is mind boggling. When the
vehicle leaves the manufacturing plant they are driven to the port and parked
awaiting shipment. When we were there the number of cars at the port seemed to
on forever. Not knowing this at the time this is a great example job and
process costing. I could not even begin to get my head around what direct and
indirect costs are calculated to work out a profit per vehicle. From my
perspective the cost of the vehicle retail was $13990. The company I worked for
pay Hyundai an amount (wholesale) for that vehicle. That amount is set by
Hyundai as the price to cover direct and indirect costs in accounting to
profit. My question is how can a firm as big as Hyundai set the price that will
pay for everything from Employees being paid, manufacturing materials, building
the product and shipping? And at the same time make profit? The reading from
Chapter 6 has answered this for me. I was seeing the process as a whole.
However, Hyundai would break each component of the car manufacturing process
into divisions or groups. And now I realise why we were taken too many
different areas, as they were the divisions. Project and design, manufacturing
and shipping (only an example). As in the study guide each division would have
their direct and indirect costs added, and in the end would the profit be
calculated. However, would this not then be up to the Accountants about how to
allocate cost? Couldn’t cost be allocated to one division higher than another?
And wouldn’t this give a false reading concerning how differing divisions may
be performing? From the reading my understanding of this has been somewhat
satisfied. I understand that indirect and direct costs are allocated in
reference to the perceived cost of operations within a certain division. I
particularly like the example on pg. 5 of the guide. It is simple but powerful
as it shows to me in a picture what I am getting my head around as outlined
above. The cost object, in this instance is the vehicle; by calculating the
costs being attached to it businesses are able to calculate the price of sale
to ensure profit.
I thought the section concerning Martin’s son and his rock
band was a great example of explaining cost relationships. As a manager, I was
giving figures concerning the cost of my department in relation to the profit.
To be honest I did not enjoy looking over the figures, but it did allow me to
make decisions. For instance, we were only just making budget, but I noticed
many customers leaving the yard as there was not enough Sales people to engage
them. After looking at the numbers I presented to management the need for a
Customer Liaison officer, and another Salesperson. The risk was that employing
2 more people was not going to improve profit immediately. But I was able to
sell the risk by projecting how this would increase profit. Well I got my
liaison, however the extra sales person was agreed on the provision that it was
a cadet and I would be training them. Great I thought, am I not busy enough?
The Liaison was great, it was a female, and she answered all the sales calls
coming in and allocated them evenly amongst the sales staff, and followed up on
them. My sales cadet went on to become the best salesperson in my department
within 6 months. My department exceeded budget, so much so that we became the
best performing in the whole company. I realise now that it was not for understanding
the numbers I would not have been able to make my case for the employees that
would contribute to an increase in profit.
In conclusion, I must say that of all the reading so far in
this course this has been the most enjoyable. The concept of cost relationships
is interesting. Without the calculating of cost, how is a firm know when a
product is successful or not? And how does a firm make decisions upon future
direction without knowing what has happened in the past? How can a firm way up
the risks of introducing a new product without understanding the costs
involved? And lastly how can a firm know when a product is not projecting
returns that it should, and when is the right time to cease production? All of
this is explained in the key cost relationship. I now understand why Hyundai
was willing to pay for so many people to come over to ULSAN to view the new
product. Believe me my enthusiasm for this new product rubbed off onto the
other staff when I got home. I could see that we would make lots of money. And
in the end I sold product that well exceeded Hyundai’s cost of paying for me to
go over there. So in the end the cost of this risk was a very smart move.
