Unit 4 - Applied Commercial and Quality Principles in Engineering
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BTEC Engineering Unit 4
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Unit 4 - Applied Commercial and Quality Principles in Engineering
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PEARSON (PEARSON)
A Distinction level essay at BTEC level 3 in Engineering describing the Applied Commercial and Quality Principles in Engineering involving the cost management of engineering businesses and the processes from quality control to manufacture.
Unit 4 - Applied Commercial and Quality Principles in Engineering
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Denford overview
Denford is a UK-based manufacturer of CNC machine tools, CAD/CAM software and 3D printing
solutions for the education and training markets. The company has been in business since 1978 and
is a leading provider of CNC machines, CAD/CAM software, and 3D printing. Denford also provides a
range of services including training, technical support and after-sales service.
Why do engineering organisations analyse and control costs?
Engineering organisations analyse and control costs to ensure that projects are completed within
budget and that resources are used efficiently. Cost analysis helps organisations identify areas where
costs can be reduced, and cost control helps them manage those costs. Cost analysis and control also
help organisations identify potential risks associated with projects, allowing them to plan ahead to
tackle these risks and work around them. Businesses are constantly looking at way that they can
reduce costs in order to maximise profits whether it is through negotiating better prices with
suppliers, reducing staff levels or just finding better ways to operate. As a result, it allows businesses
to make more informed decisions on how to allocate their resources. Furthermore, focusing on the
control of costs will make a business prioritise short term goals over long term like investing as it is
more secure and a less hesitant approach which will mean they will be drawn away from the idea of
potentially investing into any research that can develop their machines and make their line of
products more efficient and automated which could be a major loss. Overall, while controlling costs
is an essential part of running a successful business, it is just one factor that needs to be considered
in the decision-making process.
Denford’s TC270 lathe product:
This lathe product accounts for 51% of the company's lathe sales annually which Is usually 267 units
per year going for an average sales price of £7347 per unit. This accounts to £1,961,649 in revenue
for the company using only this product. The direct material cost per unit accounts to £2.230.66 and
consists of the motor, tools, case, chuck, PCB, cabling, safety switch, tool carousel, sundries and
manuals. This is 30% of the sales price of the product and does not even include the indirect
overheads like the utilities, rent and insurance which also contribute to the cost and will vary
depending on the location and size of the factory.
How are costs allocated to activities:
This entails recognising the numerous expenses connected with each activity and assigning them in
accordance with some predetermined standard, like the time or resources each activity consumes.
Direct costs, indirect costs, variable costs, semi-variable costs, fixed costs, and general/administrative
costs are some of the cost kinds that Denford Ltd may experience.
Costs that may be directly linked to a particular good, service, or activity are referred to as direct
expenses. Costs that can't be immediately linked to a particular good, service, or activity are known
as indirect costs. While semi-variable costs comprise both fixed and variable components, variable
costs change according to the volume of production or activity. General/administration expenses are
related to running the overall firm rather than any particular product or service, whereas fixed costs
do not change based on the level of output or activity. Fixed costs are costs that have no change
depending on their output so this will comprise of overheads like rent, utilities, insurance and
depreciation for example.
These costs are usually collected monthly and annually so establish how every department is
performing and whether or not they are contributing to the success of the company or not. If not,
, Denford Ltd would first need to establish the costs related to each activity before deciding on the
best foundation for allocating the costs to specific activities. For instance, the business might divide
direct costs among activities based on the quantity of materials utilised, and indirect costs among
activities depending on the area of the facility occupied by each activity. Overall, the process of
allocating costs can be complicated and necessitates careful evaluation of the various costs and the
methods used to allocate them.
Sales targets are an effective way of incentivising the work that employees do and encourage them
to work towards something for an achievement or target. It will also allow the company to track
whether a product is meeting its targets or whether it needs some improvements or potentially if a
USP can be added to the product to maximise sales. If a product is on track to achieve its intended
goals, then no adjustments need to be put into place and by setting targets, a business can create a
budget best suited to their revenue expectations ensuring that It covers the costs and still allows for
a comfortable amount of profit.
Companies can pursue a variety of strategic goals with the money they save by taking cost-cutting
strategies. They include marketing campaigns to compete with rivals, debt repayment, corporate
growth through infrastructure and technology investments or the introduction of new products and
funding a hiring drive to find and keep talent.
Why an engineering organisation controls costs:
The historical approach to costing is using existing previous data from previous months and various
products. This will involve allocating overhead costs to goods or services based on previous gathered
data. This method however is unreliable because it makes the assumption that all of the costs such
as utility bills, rent, insurance, advertising etc will remain the same which is inaccurate as these are
variable costs so they will change with output. For example, one month Denford may sell 30
TC270 Lathe products and in the second month may sell only 20 which will mean the utility bills will
be much higher in the first month in order to keep up with the demand and ensure all of the
machines are running. In summary the cost of overheads will change in relation to the demand for
the product.
Overall, this historical approach can be a good starting point or a good short-term approach in the
startup of a new product line for example however would not be practical further down the line
when demand is fluctuating and costing will begin to vary. Cost behaviour is the manner in which
expenses are impacted by changes in business activity. It is crucial that a business understands the
behaviour of its costs as it will allow them to identify where changes in costs and production will help
with their production levels. One way to set a profitable sales target is to firstly analyse costs and
conduct and cost volume profit analysis.
Since the 1970’s Denford have offered a range of different models for their CNC machines, recently
introducing a virtual reality concept which allows the users to practise and test the machines before
purchasing them. The new VR concept has allowed people to learn and even master the techniques
required to operate a CNC machine without having to use a physical version and wasting raw
materials. This innovative idea has provided a realistic and immersive training experience for the
users. On top of this, Denford have produced CAM softwares like QuickTURN, QuickCAM PRO,
QuickCAM 2D Design and many more to diversify and expand their product range to new markets.
Denford aims to bring all the required softwares, machines and programmes needed for
manufacturers to their stores to improve convenience for their customers and help them develop the
skills required to use them which is why they have had such an influential impact on the market.
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