Banking History of Bangladesh
The banking system at independence consisted of two branch offices of the former State Bank of Pakistan and seventeen large commercial b...
Banking History of Bangladesh
Banking History of Bangladesh
Banking History of Bangladesh
Overhead Allocation in Determination of Seat Rent of Private Hospitals
Overhead Allocation in Determination of Seat Rent of Private Hospitals
Overhead Allocation in Determination of Seat Rent of Private Hospitals SCOPE AND OBJECTIVE OF THE REPORT As a business expe...
Cost Accounting System
Cost Accounting System
All kinds of organizations - manufacturing firms, service companies, and nonprofit organizations - need some form of cost accounting, tha...
The role of various cost concepts in decision making process
The role of various cost concepts in decision making process
Decision making is central to the management of an enterprise. The manager of a profit making business has to decide on the manner of im...
CHALLENGES FACED BY BANGLADESHI AGRICULTURE
CHALLENGES FACED BY BANGLADESHI AGRICULTURE
Bangladesh has an agriculture-dependent economy with a growing population and one of the world's lowest land areas per caput. Not sur...
Agricultural Sector of Bangladesh
Agricultural Sector of Bangladesh
Agriculture is the single most important sector of Bangladesh's economy. 80% of the population is engaged in agriculture (66% of the...
Problems and Prospects of Small Business Development in Bangladesh
Problems and Prospects of Small Business Development in Bangladesh
Now-a-days there are a lot of Small Business firms are operating in verity of fields. We get our daily necessaries from the grocery shop...
Banking History of Bangladesh
Foreign-owned banks were permitted to continue doing business in Bangladesh.
The insurance business was also nationalized and became a source of potential investment funds.
Cooperative credit systems and postal savings offices handled service to small individual and rural accounts.
The new banking system succeeded in establishing reasonably efficient procedures for managing credit and foreign exchange. The primary function of the credit system throughout the 1970s was to finance trade and the public sector, which together absorbed 75 percent of total advances. The government's encouragement during the late 1970s and early 1980s of agricultural development and private industry brought changes in lending strategies. Managed by the Bangladesh Krishi Bank, a specialized agricultural banking institution, lending to farmers and fishermen dramatically expanded. The number of rural bank branches doubled between 1977 and 1985, to more than 3,330. Denationalization and private industrial growth led the Bangladesh Bank and the World Bank to focus their lending on the emerging private manufacturing sector. Scheduled bank advances to private agriculture, as a percentage of sectoral GDP, rose from 2 percent in FY 1979 to 11 percent in FY 1987, while advances to private manufacturing rose from 13 percent to 53 percent.
The transformation of finance priorities has brought with it problems in administration. No sound project-appraisal system was in place to identify viable borrowers and projects. Lending institutions did not have adequate autonomy to choose borrowers and projects and were often instructed by the political authorities. In addition, the incentive system for the banks stressed disbursements rather than recoveries, and the accounting and debt collection systems were inadequate to deal with the problems of loan recovery. It became more common for borrowers to default on loans than to repay them; the lending system was simply disbursing grant assistance to private individuals who qualified for loans more for political than for economic reasons. The rate of recovery on agricultural loans was only 27 percent in FY 1986, and the rate on industrial loans was even worse. As a result of this poor showing, major donors applied pressure to induce the government and banks to take firmer action to strengthen internal bank management and credit discipline. As a consequence, recovery rates began to improve in 1987. The National Commission on Money, Credit, and Banking recommended broad structural changes in Bangladesh's system of financial intermediation early in 1987, many of which were built into a three-year compensatory financing facility signed by Bangladesh with the IMF in February 1987.
One major exception to the management problems of Bangladeshi banks was the Grameen Bank, begun as a government project in 1976 and established in 1983 as an independent bank. In the late 1980s, the bank continued to provide financial resources to the poor on reasonable terms and to generate productive self-employment without external assistance. Its customers were landless persons who took small loans for all types of economic activities, including housing. About 70 percent of the borrowers were women, who were otherwise not much represented in institutional finance.
Collective rural enterprises also could borrow from the Grameen Bank for investments in tube wells, rice and oil mills, and power looms and for leasing land for joint cultivation. The average loan by the Grameen Bank in the mid-1980s was around Tk2,000 (US$65), and the maximum was just Tk18,000 (for construction of a tin-roof house). Repayment terms were 4 percent for rural housing and 8.5 percent for normal lending operations. The Grameen Bank extended collateral-free loans to 200,000 landless people in its first 10 years. Most of its customers had never dealt with formal lending institutions before. The most remarkable accomplishment was the phenomenal recovery rate; amid the prevailing pattern of bad debts throughout the Bangladeshi banking system, only 4 percent of Grameen Bank loans were overdue. The bank had from the outset applied a specialized system of intensive credit supervision that set it apart from others. Its success, though still on a rather small scale, provided hope that it could continue to grow and that it could be replicated or adapted to other development-related priorities. The Grameen Bank was expanding rapidly, planning to have 500 branches throughout the country by the late 1980s.
Beginning in late 1985, the government pursued a tight monetary policy aimed at limiting the growth of domestic private credit and government borrowing from the banking system. The policy was largely successful in reducing the growth of the money supply and total domestic credit. Net credit to the government actually declined in FY 1986. The problem of credit recovery remained a threat to monetary stability, responsible for serious resource misallocation and harsh inequities. Although the government had begun effective measures to improve financial discipline, the draconian contraction of credit availability contained the risk of inadvertently discouraging new economic activity.
Foreign exchange reserves at the end of FY 1986 were US$476 million, equivalent to slightly more than 2 months worth of imports. This represented a 20-percent increase of reserves over the previous year, largely the result of higher remittances by Bangladeshi workers abroad. The country also reduced imports by about 10 percent to US$2.4 billion. Because of Bangladesh's status as a least developed country receiving concession loans, private creditors accounted for only about 6 percent of outstanding public debt. The external public debt was US$6.4 billion, and annual debt service payments were US$467 million at the end of FY 1986.
Money and Banking-Currency Fluctuation:
At independence the value of the taka, Bangladesh's unit of currency, was set between 7.5 and 8.0 to US$1. With the exception of FY 1978, the taka's value relative to the dollar declined every year from 1971 through the end of 1987. To help offset this phenomenon, Bangladesh first used the compensatory financing facility of the International Monetary Fund (IMF--see Glossary) in FY 1974. Despite the increasing need for assistance, the Mujib government was initially unwilling to meet the IMF's conditions on monetary and fiscal policy. By FY1975, however, the government revised its stance, declaring a devaluation of the taka by 56 percent and agreeing to the establishment by the World Bank of the Bangladesh Aid Group (see Foreign Assistance, this ch.). Between 1980 and 1983, the taka sustained a decline of some 50 percent because of a deterioration in Bangladesh's balance of payments. Between 1985 and 1987, the taka was adjusted in frequent incremental steps, stabilizing again around 12 percent lower in real terms against the United States dollar, but at the same time narrowing the difference between the official rate and the preferential secondary rate from 15 percent to 7.5 percent. Accompanying this structural adjustment was an expansion in the amount of trade conducted at the secondary rate, to 53 percent of total exports and 28 percent of total imports. In mid- 2014, the official rate was relatively stable, approaching Tk79 to US$1.
Overhead Allocation in Determination of Seat Rent of Private Hospitals
Overhead Allocation in Determination of Seat Rent of Private Hospitals
SCOPE AND OBJECTIVE OF THE REPORT
As
a business expectative of future, we should have to gather experience beside
our institutional education. We should not concern our lesson only in classroom
but to implement it in practical life that will help us in our future life.
So,
identify objectives is very much important. Our purpose of preparing the report
is:
To
identify and know the cost allocation methods followed in private hospitals.
To
identify how the private hospitals make their cost allocations for their seat
rent.
To
know how the private hospitals use the cost allocation for their seat rent.
To
find out how effectively they do this job.
METHODOLOGY
OF THE STUDY
Collection
of data is an important part of a term paper preparation. In preparing the
report we have maintained some steps. Which are given bellow —
Step-1:
At first, we select Fortune Hospital ltd. for making our report on “Treatment
of seat rents” practices of a particular organization.
Step-2:
We went to the Fortune Hospital ltd. with group and meet with the director,
doctors’, manager and other employees.
Step-3:
Then we collect various (primary and secondary) data from the manager about the
“Treatment of seat rents”
Step-4:
Process the data through taking helpful hinds from our course teacher M.
Takibur Rahman.
Step-5:
Again analysis and interpretation the data.
Step-6:
Then we calculate the relevant calculations.
Step-7:
Finally, we prepared our report.
LIMITATION
OF THE STUDY
It
was not so easy to us prepare such type of report as the following reasons was
existed.
This
report is based on treatment of overhead allocation in determination of seat
rent. We don’t have sufficient knowledge about cost allocation.
This
is a calculative and analysis based report. So it needs sufficient time. But we
do not have surplus time to make such kind of analytical and calculative
report.
As
the Fortune Hospital ltd. is a private organization, the authority try to keep
some information confidential. As a result we were not capable to collect the
total expected information from them.
Although
we face some limitation, we were trying our best to overcome these complexities
and provide information as far as possible.
CHAPTER:
2 DISCUSSION
2.1
DEFINITION OF OVERHEAD
Any
expenditure which cannot be charge directly to any job, operation or process
may be called overhead. Thus, overhead indicates indirect expenditure of any
kind. It includes indirect materials, indirect wages and indirect expenses.
Eric
l. Kohler defined overhead as “any cost of doing business other than a direct
cost of an output of product or services. He also pointed out that overhead is
“a generic name for manufacturing cost of materials and services not readily
identifiable with the product or services that constitute the main output of an
operation. Overhead therefore, means those expenses, which cannot be allocated
to any product or services (as direct cost) but can be apportioned to or
absorbed by, the product or services.
According
to H. J. Wheldon, overhead represents the cost of indirect materials, indirect
labor and such other expenses including services as cannot be conveniently be
charged to a specific unit. W. W. Bigg says that all indirect costs are termed
as overheads. According to W. M. Harper, overheads are costs which do not
result solely from the existence of individual cost unit.
2.2
DIFFERENT NAMES OF OVERHEAD
Overhead
has many other names such as overhead cost, overhead expense, overhead charge,
manufacturing and commercial expense, indirect cost, non productive cost,
supplementary expense, supplementary cost, burden, on cost, load, loading etc.
Sometimes
distinctions are drown between these terms but such distinctions are not
consistently observed. In fact, all these terms are used to mean the same thing
that is overhead.
2.3
CLASSIFICATION OF OVERHEAD
Overhead
may be classified in various ways as stated below-
A)
Function wise classification
B)
Element wise classification
C)
Behavior wise classification
D)
Control wise classification
Let
us discuses each of the above briefly-
A.
Function wise classification
Every
manufacturing organization has three distinct functions, they are
i)
Production function
ii)
Administrative function
iii)
Selling and distribution function.
Stores
expenses, time office expenses, pay-roll department expenses, transport cost,
super vision cost, factory clerical cost, in direct labor, personnel department
expenses, factory supplies, maintenance and repair, insurance, depreciation,
canteen expenses, rent and taxes etc are the examples of production overhead.
Rent,
rates and taxes of administrative building, salary of the staff office
connected with general administration, depreciation of office equipment and of
building, postage, telegram and telephone, stationary, office expenses,
director’s remuneration, bank charges etc. are the examples of administration
overhead.
Sales
men’s salary and commission, advertisement expenses, travelers commission,
market research expenses are the examples of selling overhead.
Godown
expenses in connection with storing of finish product, awaiting sale, packaging
charges, loading and unloading, insurance, maintenance, and repair of delivery
vans are the examples of distribution overhead.
B)
Element wise classification
If
indirect expense are classified element wise we come across three classes
1.
Indirect materials
2.
Indirect labor
3.
Indirect expenses
1.
Indirect materials:
Administration:
Stationary, canteen food, cleaning materials etc.
Selling
and distribution: Stationary, fuel etc.
2.
Indirect labor:
Factory:
salary of foreman, supervisors, works managers etc. wages of maintenance and
repairs staff, wages of indirect workers etc.
Administration:
salary of all employees of administrative function from managing director to sweeper,
directors remuneration etc.
Selling
and distribution: salary of sales officers, staff and distribution men.
3.
Indirect expenses:
Factory:
Repairs and maintenance, rent, rates and taxes, insurance, depreciation etc.
Administration:
all expenses in connection with general administration.
Selling
and distribution: Godown rent, insurance, advertisements, depreciation etc.
C)
Behavior wise classification
Fixed
overhead: Rent, rates, insurance, stationary, salary of management staff etc.
Variable
overhead: Indirect labor, indirect material, power, packaging, travelers,
salesmen’s commission etc.
Semi-variable
or semi-fixed overhead: repairs and maintenance, depreciation, supervisors
salary etc.
D)
Control wise classification
Overhead
costs which can be controlled by the exercise of proper managerial influence
are controllable costs and overhead costs that cannot be controlled in spite of
the best exercise of managerial influence are uncontrolled labor costs.
2.4
METHODS OF OVERHEAD ALLOCATION
Service
departments, by definition, don't produce marketable goods. Their costs,
therefore, have to be allocated to those departments that use the services.
From there the costs are allocated further, either to other departments or to
products. There are mainly three methods for overhead allocation for service
department. They are-
1.
The direct method.
2.
The step-down method.
3.
The reciprocal method.
1.
The direct method, which is the most widely used allocation method, allocates
each service department's costs directly to the production departments,
ignoring services rendered to other service departments.
2.
The step-down method, also widely used, allocates costs of service departments
to both production and service departments. The sequence of allocation usually
begins either with the department rendering service to the greatest number of
other service departments (or, alternatively, the most costly service
department) and progresses all the way to the one rendering service to the
smallest number of other departments (or to the least costly department). Once
a service department's costs have been allocated, no subsequent
service-department costs are allocated back to it.
3.
The reciprocal method is the most accurate allocation method. This method recognizes
reciprocal services among service departments. It requires solving
a
set of simultaneous linear equations.
OVERVIEW
OF SELECTED ORGANIZATION (FORTUNE HOSPITAL)
“Providing
medical facilities with great care” with this objective in 2005 fortune hospital
has been established in Patuakhali. As it is a private hospital, it has a
objective of earning profit but their objective is “Earning profit by serving
and providing maximum effort.”
The
owner of the hospital is Dr. Fazle Rabbi, MBBS (DMC); Specialist in
Neuromedicine, RMO, department of Neuromedicine, BSMMU (PG hospital),
with
the co-owner ship of Dr. Shirin Akter, MBBS.
This
hospital is a newly established hospital in Patuakhali. They are now working by
taking rent a 4 stored building with a rent of Tk 24000 per month. They have
four appointed doctors. Two of them are dentist and other two are of medicine.
They give about Tk 12000 as remuneration (basic salary). They provide some
other facilities to each doctor. For any kind of additional service, they call
guest doctors from Patuakhali, Barisal as well as from Dhaka. Dr. Fazle Rabbi
also visits the hospital in more than 4 times in a month.
They
have 12 sisters and 5 words boy to serve 24 hours in the hospital by rotation.
They have one manager, one accountant and two receptionists. They also have a
pathologist and an electrician.
Fortune
hospital is a 20-bed hospital. Within these 20 beds 15 is for general and 5 for
the VIP patient. The seat rent is also different in these two categories. For
general bed they charge Tk 150 per day and Tk 700 per day for the VIP beds.
They
also provide outdoor facility for the patients. For this, each patient has to
pay Tk 200 for service charge. Four days in a month, they provide service by
the help of specialist doctors from Dhaka.
Though
Fortune hospital is a newly established hospital it is working well and they
are now in a position of good competitor for other private clinics of
Patuakhali.
With
the help of generator, they provide 24 hours electricity.
CHAPTER:
3 CALCULATION AND ANALYSIS
3.1
CALCULATION OF WEIGHT OF REVENUES
Data
will follow...
CHAPTER:
4
FINDINGS
Fortunr
hospital has only three sources of revenue they are, out door income, seat rent
and operation theater charge.
They
have the total income of Tk 2361500 and from the seat rent; they earn Tk
997500, revenues per year.
This
seat rent is collected from two types of seat- general bed and VIP bed.
Their
rent per seat is Tk150 for general and Tk. 700 for VIP seats per day.
Their
cost per seat per day is Tk. 87.70 for general bed and Tk. 405 for VIP bed.
Fortune
hospital ltd. are in a profit position for general bed for Tk. 62.3 (per day
allocation) and profit Tk. 295 from VIP bed (per day allocation).
Their
profit from general bed is 41.53% and profit from VIP bed is 42.14%.
Their
profit margin for outdoor revenue is 37.71% and from Operation Theater, charge
is 32.59%.
CHAPTER:
5 CONCLUSION AND RECOMMENDATIONS
5.1
CONCLUSION
Cost
allocation is one of the most difficult tasks in running any business.
Accurately understanding the costs, however, are imperative if anyone want his
business to succeed. One has to price the products or services in a way to be
profitable and allocating costs is a major part of profitability.
Overhead
allocation is one of the more confusing and complex issues facing many
businesses. Yet, figuring out how to best determine overhead is very important
to a firm’s profitability. Here, for the calculation of overhead and direct
expenses we used the physical output measure. From the overall calculation, we
get the cost per bed and the profit per day per bed. This calculation gives us
the result that the private hospital is making about 41.53% profit from their
general seat and 42.14% profit from VIP bed. They have only other two types of
revenue source as outdoor revenue and operation theater charge. The profit
margin of outdoor revenue and operation theater charge is 37.71% and 32.59%.
We
try to make this report as correct as possible with the help of the information
has been supplied by the Fortune Hospital authority.
5.2
RECOMMENDATION
They
have only three sources of revenue. They are --from the seat rent, from the
outdoor and from the operation theater charge. They must try to increase their
sources of revenue.
Today’s
market is competitive market. In private hospital or clinic sector there are
number of competitors. So to exist in this competitive market Fortune hospital
should try to increase their health services.
Their
hospital in a rental building for which they have to give Tk. 24000 per month.
That is why, though it is a newly establish hospital should try to make their
own hospital building.
It
is only 20 beds hospital. To meet the increasing demand in medical sector they
should try to increase their bed capacity with modern medical instruments.
This
hospital is in Patuakhali district. And they are in a profit position in terms
of general bed for about 41.53% and profit from VIP bed is about 42.14%. For
this reason, their seat rent basically in general bed and in VIP bed is in
somehow properly allocated. But in this competitive market to derive more
client they can minimize their seat rent.
Their
cost for each general bed is Tk. 87.70 and Tk. 405 for VIP bed. But the seat
rent for general is Tk. 150 and for VIP is Tk. 700. So they can take client
driven policy if the management is aggressive.
To
days, market is very much competitive. So in taking any type of decisions they
should be very much careful.
There
is no ambulance service by the Fortune hospital. They should try to provide
this facility as early as possible.
5.3
BIBLIOGRAPHY
1.
Matz Adolph & Usry Milton F.; Cost Accounting Planning and Control ; 8th
edition,
South western publishing company.
2.
Basu Sankar Prasad & Das Monilal; Theory and practice of costing
(Volume
one); 13th edition, Rabindra library.
3.
Horngren Charlest T., Datar Srikant M. & Foster George; Cost Accounting;
12th
edition, Prentice hall of India private limited.
5.4
Appendices
Fortune
hospital ltd.
Sher-E-Bangla
Road, Patuakhli
Cost Accounting System
Cost Accounting is that part of the cost management system that measures costs for the purpose of management decision making and financial reporting. The cost accounting system typically includes two processes:
1. Cost accumulation: Collecting costs by some "natural" classification such as materials or labor, or by activities performed such as order processing or machine processing.
2. Cost assignment: Tracing or allocating costs to one or more cost objectives such as activities, processes, departments, customers, or products.
Cost: A sacrifice or giving up of resources for a particular purpose, frequently measured by the monetary units that an organization must pay for goods and services.
Cost object: Anything for which decision makers desire a separate measurement of costs. Examples include departments, products etc.
Direct costs: Costs that can be identified specially and exclusively with a given cost objective in an economically feasible way.
Indirect costs: Costs that can not be identified specifically and exclusively with a given cost objective in an economically feasible way.
Cost allocation: Assigning indirect costs to cost objects using plausible and reliable cost drivers.
Unallocated costs: Costs for which we can identify no relationship to a cost objective.
Product costs: Costs identified with goods produced or purchased for resale.
Period costs: Costs that become expenses during the current period without going through an inventory stage.
Cost pool: A group of individual costs that a company allocating to cost objectives using a single driver.
The role of various cost concepts in decision making process
The name of my project is " The role of various cost concepts in decision–making process " In this assignment I am trying to define the cost first then show how they are playing role in different situation. The costs that I discuss about are as follows:
Manufacturing costs
Non-manufacturing costs
Fixed costs
Variable cost
Absorption costing
Variable costing
Opportunity costs
Sunk costs
Product costs
Period costs
Differential costs
Standard costs
Direct cost & Indirect cost
Mixed cost.
Manufacturing costs:
Most manufacturing companies divide manufacturing cost into three broad categories. Direct material, Direct labor and Manufacturing overhead.
Direct material: Direct materials are those materials that become an integral part of the finished product and that can be physically and conveniently traced to it. For example: Panasonic use electric motor in it’s CD Players to make the CD spin.
Direct labor: The term direct labor is reserved for those labor costs that can be easily traced to individual product. Direct labor is sometime called touch labor, since direct labor workers typically touch the product while it is being made. For example the labor cost of machine operator.
Manufacturing overhead: Manufacturing overhead the third element of manufacturing cost, includes all cost of manufacturing except direct material and direct labor. So, we can say that all costs associated with operating the factory are included in the manufacturing overhead category. Such as indirect material, indirect labor, maintenance and repairs on production equipment etc.
Role in decision-making
Manufacturing cost is used to determine the inventory valuation on the balance sheet and cost of goods sold on the income statement of external financial reports.
Assume that Tongi national company produce fan. The total manufacturing cost of one unit is 850 taka, where
Direct material: 400 tk
Direct labor: 150 tk
MOH: 300 tk
Total 850 tk
Now from this manufacturing cost the company can decide that how much they want to make profit and set a selling price based on that. Suppose they want to make 20% profit on manufacturing cost then their selling price will be 1020 tk.
But after setting selling price they see that one of their competitor sales their product at 950 tk. In this situation the company can justify the manufacturing cost that where the wrong is going on. If their material price is high then they can buy the raw material from other supplier at low cost to reduce the access cost. If their labor cost is high, then they can hire labor from other at low cost or can cut the number of employee to reduce the cost. By taking this corrective action the company can maintain the manufacturing cost to stay in the market.
Non-manufacturing costs:
Generally non-manufacturing costs are sub-classified into two categories, (1) Selling costs, (2) Administrative costs
Selling costs: Selling cost include all costs necessary to secure customer orders and get the finished product on service into the hand of the customer. This cost is also known as marketing cost. Example: Advertising, Shipping, Sales travel etc.
Administrative costs: It includes all executive, organizational and clerical costs associated with the general management of an organization rather than with manufacturing and selling. Example: Secretarial, compensation, public relation and other this types of costs
Role in decision-making
Non-manufacturing cost is playing a great role in decision-making. In income statement we deduct non-manufacturing cost or operating cost from gross margin to get net profit. Suppose we expect “X” amount of money as net profit. But if the net income falls below than our expectation, then we must reduce operating cost to gain more profit. We can give one example to clear this idea. Suppose our net income is less than our expectation. Now we have to reduce price. We can take advertising cost as a sample. In case of advertising our first motive is to identify our target consumer then we have to select the advertising media. Suppose we make one types of product and our target consumers are fishermen. In this case we must use radio as an advertising media rather than television and it will cost less. By this way we can save non-manufacturing cost. In this purpose we can also reduce the cost of shipping, sales travel, compensation, public relation cost, sales salary etc. to increase net profit.
Fixed costs, variable costs & their role in decision-making
Fixed costs:
A fixed cost is a cost that remains constant in total, regardless of changes in the level of activity. As the activity level rises and falls, the fixed cost remains constant in total amount unless influenced by some outside force, Such as price changes. There are two types of fixed cost.
(1) Committed fixed cost: Committed fixed costs relate to the investment in facilities, equipment and the basic organizational structure of a firm. Example: Rent.
(2) Discretionary fixed cost: Discretionary fixed cost usually arise from annual decisions by management to spend in certain fixed cost areas. Example: Advertising.
Role in decision-making
Usually fixed cost is used to determine break-even point. The formula for break-even point is = fixed cost Cm per unit.
Suppose our fixed cost = $ 20,000
Selling price = $ 250
Variable cost = $ 150
Then break-even unit = {20,000 (250 – 150)}
= 200 unit
In the break-even point there is no profit as well as no loss at all. We have calculated break-even point to determine the sales level and using this method we can also calculate the number of unit to gain our expected profit.
Reduction of fixed cost is also very important to increase net income. If we reduce fixed cost per unit then it will contribute to net income. Suppose our production is not running in our full capacity level then we can increase production in order to reduce our fixed cost per unit. For example:
Capacity: 400 Units
Production: 300 Units
Fixed cost: $20,000
Variable cost: $150
Selling price: $250
Current income statement
Sales = $75,000
(300 250)
(-) V. cost = $45,000
(300150)
Cm $30,000
(-) F. cost = $20,000
Net income $10,000
Here we see that in the current situation we have a net income of $10,000. Now we get an offer from outside to deliver 100 extra units at $200. In this case our proposed net income as follows:
Proposed income statement
Sales = $95,000
(300 250) + (100200)
(-) V. cost = $60,000
(400150)
Cm $35,000
(-) F. cost = $20,000
Net income $15,000
In this case we will accept the proposal because our proposed net income is greater than the current net income. Though the proposed selling price is less than current one but we can generate more income because in this case fixed cost goes down from (20,000 300) = $66.67 to (20,000 400) = $50.00, So here we see that how fixed cost plays effective role in decision-making.
Variable cost:
A variable cost is a cost that varies in total, in direct proportion to changes in the level of activity. The activity can be expressed in many ways, such as units produced, units sold, miles driven, lines of print and so forth. A good example of variable cost is direct material. It is important to note that when we speak of a cost as being variable, we mean the total cost rises and falls as the activity level rises and falls. There are two types of variable cost.
(1) True variable cost: Direct material is a true variable cost because the amount used during a period will vary in direct proportion to the level of production activity.
(2) Step-variable cost: A cost that is obtained only in large chunks and that increases or decreases only in response to fairly wide changes in the activity level is known as step-variable cost. Maintenance cost is an example of step-variable cost.
Role in decision-making
Variable cost plays a great role in decision-making we know that if we increase our production then our variable cost will also increase. So we have to concentrate on reduction of total cost and in this case we must consider fixed cost also. If we increase our production within our capacity, our unit cost of production will decrease. Because as production increase variable cost will also increase but fixed cost per unit will decrease.
Suppose,
Variable cost = $1
Fixed cost = $10
Capacity = 20 unit
Production Variable cost Fixed cost Total cost
unit per unit per unit per unit
5 1 2 3
10 1 1 2
15 1 .56 1.56
Here we see that as production increases total cost per unit decrease because fixed cost per unit continuously decreases. So, in case of reducing total cost we must increase the production level. And as we know variable cost is constant so we must try to reduce the total cost from other sector to generate more profit. Thus variable cost has a significant impact on selling price.
Variable cost is also used to calculate cm per unit, cm ratio, margin of safety, degree of operating leverage and other this types of important things.
Absorption costing:
A costing method that includes all manufacturing costs, direct materials, direct labor and both variable and fixed overhead as part of the cost of a finished unit of production.
For example in this method the unit cost is as follows:
Unit cost
Direct material: 03
Direct labor: 02
Variable MOH: 03
Fixed MOH: 02
Total $ 10 per unit
Here fixed and variable MOH both are considered.
Role in decision-making
Absorption costing is the generally accepted method for preparing mandatory external financial reports and income tax returns. Absorption costing treats fixed manufacturing overhead as a product cost. If fixed costs are treated as period costs and there is a low level of sales activity in a period then a low profit or a loss will be recorded. If there is a high level of sales activity there will be relatively high profit. Absorption costing creates a smoothing of these fluctuations by carrying the fixed costs forward until the goods are sold. Many firms use the Absorption approach exclusively because of its focus on full costing of units of product.
Variable costing:
In variable costing, only variable costs of production are allocated to products and the unsold stock is valued at variable cost of production. Fixed production costs are treated as a cost of the period in which they are incurred.
For example in this method the unit cost is as follows:
Unit cost
Direct material: 03
Direct labor: 02
Variable MOH: 03
Total $ 08 per unit
Here fixed MOH is not considered.
Role in decision-making
Variable costing is used internally for planning purposes. Under Variable costing, only those production costs that vary with output are treated as product cost. This includes direct material, direct labor and variable overhead. Fixed manufacture overhead is treated as a period cost and charged off against revenue as it is incurred, the same as selling and administrative expenses. Under Variable costing, the profit for a period is not affected by changes in inventory. This cost is particularly important for company having cash flow problems. One thing is very important that when Variable costing is in use profits move in the same direction as sales. We can also take the data for CVP analysis directly from a contribution margin format income statement that are not available on a conventional income statement based on absorption costing. The Variable costing approaches are often indispensable in profit planning and decision-making.
Opportunity costs, Sunk costs & its role in decision making
Opportunity costs:
Opportunity cost is the potential benefit that is given up when one alternative is selected over another. For example: Suppose I worked in a company and it gives me 20,000 taka per month. But suddenly I leave that job and get admitted in North-South University for M.B.A. Then my salary 20,000 taka is my opportunity cost which I sacrificed for further education.
Role in decision-making
Opportunity cost is a very important item, which is playing an effective role in decision-making. By considering opportunity cost we can determine the real cost of production. We can give an example to clear this idea.
Let,
Direct material : $3 (Avoidable)
Direct Labor : $2 (Avoidable)
Supervisor salary : $1 (Avoidable)
Factory rent : $1 (Unavoidable)
Depreciation : $2 (Unavoidable)
Allocated general
Expense : $3 (Unavoidable)
Total cost per unit : $12
Avoidable cost : (3+2+1) = $6
Unavoidable cost : (1+2+3) = $6
Here we see that if we make the material the cost of per unit will be $12. Now we get an offer from outside at $8 per unit. If we want to buy we have to consider some other things because there are some unavoidable cost that we can’t ignore. It will add to the buying cost. Now we see that if we buy it will costs (8+6) = $14 per unit. So we can easily determine that we will go for making not buying. In this case we have to consider opportunity cost. Suppose the room, where we will make our production, the rent of that room is $20,000 and we get an offer for 5,000 unit.
Make Buy
Unit cost $12 $14
For 5,000 unit $60,000 $70,000
(+) Opportunity cost $20,000 ------
Total cost $80,000 $70,000
Here we see that if we go for making it will cost more and if we buy raw material from outside we can generate $10,000 as a profit. So, in this case we will definitely go for buy not make.
Sunk costs:
A sunk cost is a cost that has already been incurred and that cannot be changed by any decision made now or in the future. So, they should be ignored when making decision. Example: Suppose we buy a machine costs 50,000 taka to produce one kind of goods. But now there is no longer demand of that product. So we buy another new machine costs 70,000 taka. Now there is no use of old machine and we have already incurred that cost. So, here 50,000 taka is sunk cost, which was paid for purchasing of old machine.
Role in decision-making
Sunk cost does not play any role in decision-making. On the other hand it plays a great role in decision -making. Usually we deduct the sunk cost from both keep old machine & purchase of new machine. By this way we can show the proper fixed cost. Suppose our sunk cost is $50,000 but the salvage value of that machine is $20,000. Now if we don’t consider the sunk cost then it will show us $20,000 income and if we consider sunk cost, ultimately it will show us 30,000 losses. Thus sunk cost plays an effective role to show proper income. Sunk cost is also playing a great role in another criteria. If we don’t deduct the sunk cost from fixed cost then our fixed cost will be greater and our unit cost will increase also. In this case we cannot compete with our competitors. So we must deduct sunk cost from our account.
Product costs, period costs & role in decision making
Product costs:
Product costs include all the costs that are involved in acquiring or making a product. In the case of manufacturing goods these costs consist of direct material, direct labor and manufacturing overhead. Product costs are initially assigned to inventories. So, they are known as inventoriable costs.
Role in decision-making
If an organization want to minimize their inventory cost they can fallow just in time process. In this process the cost of inventory is less than the normal process. So, the product cost is minimized and it will help to generate more profit.
If an organization follows normal process for manufacturing goods, then they must reserve material for future and it will cost a lot. Such as rent for place, guard salary, maintenance cost. And it will reduce net income. So, they must follow just in time process to increase the net income.
Period costs:
Period costs are all the costs that are not incurred in product costs. These costs are expensed on the income statement in the period in which they are incurred, using the usual rules of accrual accounting. Period costs are not included as part of the cost of either purchase or manufactured goods. Example: Sales commission, Office rent.
Role in decision-making
Depending on period cost we can also take some corrective action. Normally sales commission, office rent and other these types of cost are included in period cost. Suppose our net income is lower than our expectation then we can increase our net income by reducing period cost. Let’s take office rent. If our office rent is high then we can reduce the rent by shifting office place. However for many decision-making purposes the period costs are seen as being non-controllable in the short-term, so that attention may focus on product cost.
Differential costs, standard costs and role in decision-making
Differential costs:
A difference in costs between any two alternatives is known as differential cost. A differential cost is also known as incremental cost. Technically an incremental cost should refer only to an increase in cost from one alternative to another. Decreases in cost should be referred to as decremental costs. So here we see that differential cost is broader term consist of both incremental cost & decremental cost.
Role in decision-making
Differential cost can be either fixed or variable. To illustrate assume that Keya cosmetics ltd. is thinking about changing it’s marketing method from distribution through retailer to distribution by door-to-door direct sale. Present cost and revenues are compared to projected costs and revenues in the following table:
Retailer Direct sale Differential cost
Distribution Distribution and revenue
Revenue $500,000 $600,000 $100,000
Deduct =======================================
Cost of good sold $150,000 $200,000 $50,000
Advertising $50,000 $25,000 $(25,000)
Commission - 0 - $20,000 $20,000
Depreciation $25,000 $50,000 $25,000
Other expenses $20,000 $20,000 -- 0 --
Total $245,000 $315,000 $70,000
Net income $255,000 $285,000 $30,000
======================================
According to the analysis the differential revenue is $100,000 and the differential cost is $70,000 leaving a positive differential net income $30,000 under the proposed marketing plan.
From the given table the company can easily decide that which marketing plan they should follow. As we see in the above analysis the net income under door-to-door is $30,000 higher than the previous one. And they can get it simply focusing on differential cost, revenue and net income. By this way differential cost helps in decision-making.
Standard costs:
Standard costs are target costs, which should be attained under specified operating conditions. They are expressed as a cost per unit. For example: Hospitals have standard cost (for food, laundry and other items) for each occupied bed per day, as well as standard time allowance for certain routine activities, such as laboratory test.
Role in decision-making
Standard cost is used to integrate costs in the planning and pricing and pricing structure of a business. Once the Standard cost has been decided, the actual cost may be compared with the standard. If it equals the standard then the actual outcome has matched expectations. If the actual cost is different from the standard cost allowed, then there will be variance to be investigated, whether it is favourable or unfavourable. When the actual cost is less than the standard cost then it is called favourable and when the actual cost is greater than the standard cost then it is called unfavourable. In case of favourable term management will accept the proposal and in case of unfavourable term, they will reject it.
Direct cost & Indirect cost
Direct cost, indirect cost, mixed cost and role in decision-making
Direct cost:
A direct cost is a cost that cannot be easily and conveniently traced to the particular cost object under consideration. The concept of direct cost extends beyond just direct material and direct labor. Example: Suppose woodland company is assigning costs to it’s various regional and national sales offices. Then the salary of the sales manager in its Bombay office would be a direct cost of that office.
Indirect cost:
An indirect cost is a cost that cannot be easily and conveniently traced to the particular cost object under consideration. For example: Igloo company makes varieties ice-cream. The factory manager’s salary would be an indirect cost of a particular variety such as igloo chocbar.
Role in decision-making
Direct cost includes direct material, direct labor; on the other hand indirect cost includes indirect material and indirect labor. They are playing a great role in decision-making, but not individually. They have a significant impact on manufacturing cost, because these costs are included in manufacturing cost. So ultimately they are playing role in setting selling price.
Mixed cost:
A mixed cost is one that contains both variable and fixed cost elements. Mixed costs are also known as semi-variable cost. Mixed cost is calculated by following equation.
Y = a bx
Here Y = Total cost
a = fixed cost
b = Variable cost
x = Total unit.
The fixed portion of a mixed cost represents the basic, minimum cost of just having a service ready and available for use. The variable portion represents the cost incurred for actual consumption of the service. The account analysis and the engineering approach is used to estimate the fixed and variable portion of a mixed cost.
For example: The cost of providing X-ray services to the to patients at the P>G hospital is a mixed cost. There are substantial fixed costs for equipment depreciation and for salaries for radiologists and technicians but there are also variable costs for X-ray film, power and supplies.
Role in decision-making
Mixed costs also have some role in decision-making because this cost is a combined form of fixed and variable cost. As we know fixed costs are constant but variable cost differs with the production level. So, by reducing the variable cost we can decrease total unit cost and it will help to increase net income.
Conclusion
If any organization wants to run a manufacturing company successfully then the management needs to take proper decision on time. . Most decisions will at some stage involve consideration of financial matters, particularly cost. Decisions may also have an impact on the working conditions and employment prospects of employees of the organization, so that cost considerations may, in the final analysis, be weighed against social issues. If the management can control the cost then the company will generate more profit, on the other way they will suffer loss. So, by going through this project we can easily understand how different types of cost play role in decision-making and we can apply these terms in practical life.
Sources:
1. Managerial Accounting
Ray H. Garrison
Eric W. Noreen
2. Introduction to Management Accounting
Professor Pauline Weetman
Paul Gordon
3. Class lecture
CHALLENGES FACED BY BANGLADESHI AGRICULTURE
With negligible scope for area expansion, as most of the arable lands of Bangladesh are already under cultivation, future growth will have to continue to rely on raising productivity per unit of land. For this reason, continuous efforts are being made towards developing new improved seed varieties. It is also felt that the agricultural sector has by no means exploited its full potential for crop production and that there are various opportunities for substantially increasing cropping intensities. Currently only 40 percent of the potential irrigated area is covered by modern varieties and, most important, there are wide gaps between the potential and the realized yields for all crops in the country.
Narrowing gaps between actual and potential yields, however, is easier said than done, for there are various underlying issues and constraints in terms of productivity that are beyond the bounds of technology and another green revolution. To think that the growth of crop production and the goal of self-sufficiency depend almost entirely on technological progress is not only deceiving but also detrimental to the long-term sustainable development of the country. Aside from the fact that Bangladesh is prone to frequent natural disasters, there are significant factors, both institutional and socio-economic, that play a part in determining the productivity of the agricultural sector and food security situation in the country. These include:
Landownership
Environmental degradation
Crop diversification
Social and physical infrastructure and support services
FOOD SECURITY
Towards self-sufficiency
Bangladesh became a perennially food-deficit country in the late 1950s when population pressures began to take their toll. Threats of mass starvation have been felt several times since independence owing to droughts and flooding, but a famine of significant proportion only struck the country in 1974 when world food production fell to an all-time low and world food prices rose sharply. At that time, there was insufficient food aid and the country did not have enough foreign exchange resources to buy all the grain it needed in the world market. With subsequent increase in food aid allotments from donors and the government's import programs and increased capacity to finance food imports, the days of severe famine were put to an end. However the majority of the rural populations are still afflicted by malnutrition and semi-starvation. In fact, a downward trend in the daily per caput intake of cereals, pulses, vegetables, fruits and meat can be seen over the last few decades in rural areas as well as at a national level. For example, rice intake in rural Bangladesh in 1995/96 was 427 g per caput. In 1981/ 82, 1975/76 and 1962-64, the levels of intake were 451, 493 and 505 g, respectively.
Bangladesh's dependence on food imports and, in particular, food aid throughout the years has been cause for concern. Food imports in Bangladesh currently represent approximately 18 percent of total imports and absorb 34 percent of total export earnings. In 1990/91, food aid represented 98 percent of total food imports but this has been reduced considerably to representing 30 percent of total food imports in 1995/96. The significant difference has essentially been made up by private sector imports which began in 1992/93.
The overriding objective of all agricultural policy and development since independence in Bangladesh has been to achieve self-sufficiency in food grains and, in particular, rice production. In reality, what has actually been sought is a substantial acceleration in the growth rate of domestic food production and a decreased dependence on or elimination of food aid in the long term. The emphasis on accelerating food production in Bangladesh stems from the country's excessive dependence on food imports, its precarious external account situation and its perceived comparative advantage in food production. Bangladesh has excellent soils, rechargeable aquifers that are easily tapped for irrigation, an abundance of low-cost labor in its rural areas and a climate that allows crops to be grown the year round.
Source: SOFA 1997
The role of rice
With the availability of high-yielding varieties (HYVs), rice has contributed significantly to the progress towards self-sufficiency. Despite the significant inroads wheat has made in the Bangladeshi diet, rice has been and continues to be the favored food grain in the country and constitutes 95% of the cereals consumed. Rice cultivation is the major source of livelihood for the large majority of farmers of Bangladesh and it accounts for more than 74 percent of cultivated area, 83 percent of all irrigated area and 88 percent of the total fertilizer consumption in the country. In a social, political and economic context, rice is a significant crop in Bangladesh; it dominates all other economic activities and consumes a considerable amount of foreign exchange.
Source: SOFA 1997
Foodgrain production
Although Bangladesh continues to be a net importer of food, importing on average 1.5 million tonnes of rice annually, it has achieved substantial gains in food grain production during the last two decades. From 1969/70 to 1992/93, the cropping intensity increased significantly with food grain production almost doubling. In the crop years from 1989/90 to 1992/93, Bangladesh produced bumper harvests of food grains, with a record production in 1992/93 of 19.5 million tonnes (much higher than the average of 16.4 million tonnes during 1985-89).
In 1993/94 and 1994/95, food grain production declined, as a result of droughts and floods as well as the farmers' response to the fall in the price of rice from the bumper harvest of the previous year. This was evidenced by more than a 2 percent reduction in the area sown, a decline in irrigation demand and more than a 4 percent decline in fertilizer consumption.
The country faced one of its largest food grain shortfalls ever in 1994/95, owing in part to a severe fertilizer crisis and leading to a resurgence of large food imports and high cereal prices. This situation continued until April 1996 when good boro (dry season) harvest prospects started to dampen the market.
Source: SOFA 1997
Current state of the agricultural sector
The recent trend in food grain production has not been positive. The agricultural sector is now confronted with low and stagnating yields of most crops, including rice, and the food gap between domestic production and demand has actually widened. In spite of the fact that rice production has increased at a higher rate than the rate of population growth during the last decade, and despite the fact that there are both public and private imports each year, the daily per caput food availability of food grains in Bangladesh has not reached the standard food grain requirement or target consumption level of 454 g since 1991/92. Given that food availability is not equally distributed, it is clear that the situation is worse for the poor than these figures would lead one to believe.
Source: SOFA 1997
Food preferences
HYV Rice and non-cereal crops
Over the past two decades the principal sources of growth came predominantly from boro rice, followed by aman (wet season) rice and, to a small extent, wheat. The success in accelerating rice production in the 1980s can be attributed almost entirely to the conversion of local varieties to modern HYVs and, as a result of changes in the policy environment, the adoption of irrigation and fertilizer technologies, which has enabled intensive use of the boro months.
As a result of the heavy emphasis on rice production, yields of other non-cereal crops such as pulses, potatoes, oilseeds and vegetables have stagnated. Land used previously for pulses has been converted for rice production. There have been modest increases in the yields of local rice but the average local yields have been 50 percent of those of the HYV rice. However, of late, it is the yield of modern varieties that is showing signs of stagnation.
Source: SOFA 1997
Food preferences
People from different areas, with varying customs, have different food preferences and some examples are:
Irish potatoes have been accepted as part of the staple diet in some areas: Comilla and Munshiganj prefer white while Bogra prefer red skinned varieties.
Indigenous potato varieties, such as Indurkani, are highly priced and popular with the elite families.
Sweet potatoes are consumed as staple food in some of the char (river bank) areas such as Comilla and Narshingdi.
Lentils are widely consumed throughout Bangladesh, while cowpeas are predominantly eaten in the greater Chittagong district.
Chickpeas are used in the preparation of commercial foodstuffs and there is a high consumption of them during Ramadan.
There are many different pulses and they are viewed differently by various sections of the community: lathyrus (kheshari) is eaten widely whereas mungbean is served on special occasions by the elite.
Source: Field 1995
Table of Contents
• Role of Agriculture in Bangladesh Economy
• Basic Information of Agriculture in Bangladesh
• Opportunities & Constraints of Agriculture in Bangladesh
• Objectives & Functions of the Ministry of Agriculture
• Organogram of the Ministry of Agriculture
• Agriculture Extension System in Bangladesh
• Agriculture Research System in Bangladesh
• Review of the Past Agro Sector Policy Reforms
Role of Agriculture in Bangladesh Economy
The economy of Bangladesh is primarily dependent on agriculture. About 84 percent of the total population live in rural areas and are directly or indirectly engaged in a wide range of agricultural activities. The agriculture sector plays a very important role in the economy of the country accounting for 31.6 percent of total GDP in 1997-98 at constant (1984-85) prices. The agriculture sector comprises crops, forests, fisheries and livestock. Of the agricultural GDP, the crop sub-sector contributes 71 per cent, forest 10 per cent, fisheries 10 percent and livestock 9 per cent. The sector generates 63.2% percent of total national employment, of which crop sectors share is nearly 55 %. Agricultural exports of primary products constituted 10.4% of total exports of the country in 1997-98. In the past decade, the agriculture sector contributed about three percent per annum to the annual economic growth rate.
The agriculture sector is the single largest contributor to income and employment generation and a vital element in the country’s challenge to achieve self-sufficiency in food production reduce rural poverty and foster sustainable economic development. The Government has therefore accorded highest priority to this sector to enable the country to meet these challenges and to make this sector commercially profitable.
Basic Information on Agriculture of Bangladesh
1. Area of Bangladesh
147570sq.km
2. Total population (January 1999)
128.1 million
3. GDP (1998-99)
755.73 billion Tk.
4. GDP Growth rate (1998-99)
5.2%
5. Agricultural Growth rate (1998-99)
5.0%
6. No. of Rural Household
17.83 million
7. No. of non-Farm Household
6.03 million
8. No. of Farm Household
11.80 million
9. No. of Agril. Labor Household
6.40 million
10. Small Household
80% (9.42 million)
11. Medium Household
17.50% (2.08) million)
12. Large Household
2.50% (0.3 million)
13. Cultivated Area
17.77 million acres
14. Cultivated Area per Household
1.5 acres
15. Cropping Intensity (1996-97)
174%
16. Irrigation Area
8.59 million acres
Source: Statistical Year Book of Bangladesh, 98, BBS.
Agricultural Sector of Bangladesh
The crop sector
Within the crop sector (rice, wheat, pulses and jute), rice dominates, with an average 71% share of the gross output value of all crops. As a result, growth in the agricultural sector essentially mirrors the performance of rice production, although the share of livestock and fisheries has increased steadily in recent years to 22% of the value added in agriculture.
Fluctuations in food grain production
The possibility of natural disasters is a constant threat for Bangladesh. The country is particularly vulnerable to sudden floods, cyclones and even droughts. Vulnerability to natural disasters and a heavy reliance on annual rains for the main crop performance are the cause of severe fluctuations in food grain production and prices and also very erratic GDP growth. Losses of both food and cash crops are a common occurrence, seriously disrupting the entire economy by precipitating unanticipated food import requirements. This in turn reduces the foreign exchange availability necessary for imports of essential inputs for manufacturing and industry and, as a result, causes shortfalls in exports.
Exportation
Bangladesh is the world's leading exporter of raw jute and jute products, including carpet backing, twine and sacking. It accounts for as much as 24% of world jute production.
Export earnings from fish and fish products, in particular shrimp, are also size-able, and followed by export earnings from the leather industry. Natural gas production is of increasing importance. Its major product, urea fertilizer, has more than doubled in output in the last decade and the country now exports fertilizer mainly to neighboring Asian countries. Within the agriculture sector, tea follows jute as an important cash crop and export product; however it represented only 1% of the country's total export earnings in 1994/95.
Resource base
Bangladesh has a narrow resource base, except of course its human resource potential. Industry in the country is at present not large enough to support the country through export earnings, or by employment generation. The opportunities for diversifying the economic base in Bangladesh are limited and the country continues to run up a heavy trade deficit, reflecting its dependence on imports for most essential goods, such as machinery, equipment and petroleum products, and the decline in the real prices of its traditional staple exports of jute, jute manufactures and tea. Although levels of domestic savings and investment have been growing in the 1990s, they are still low and act as a constraint to the country's economic growth and development.
BIODIVERSITY AND BIOTECHNOLOGY
Crop Diversification
With rice occupying almost 75 percent of the cropped area, followed by wheat which occupies approximately 4 percent and jute which occupies approximately 3 percent, less than 20 percent of the cropped area is devoted to a range of other crops. It appears that the benefits of crop diversification in the country are well known and have been recognized for a long time. However, all efforts seem to have been consumed by the domination of rice production and, as a result, the area under non-cereal crops has continued to diminish. The government has now recognized the urgent need for agricultural diversification, and a shift towards this end is beginning to take place, although - some would argue - at an unprogressive pace.
There are several immediate reasons why the focus of agricultural growth should incorporate more than the emphasis on food grain production alone and include several non-rice crops such as maize, pulses, oilseeds, potatoes and other vegetables as well as poultry, livestock and even sericulture production:
1) Bangladesh's serious nutrition predicament needs immediate attention. While the diet of the average Bangladeshi meets carbohydrate requirements, it is grossly deficient in proteins, vitamins and minerals.
2) Enlarging the cropping possibilities for Bangladeshi farmers will enable them to allocate their productive resources optimally and maximize their income. There are many opportunities to diversify farm products and by-products in support of agro-industries.
3) As already mentioned, the current cropping system, with its overdependence on rice production throughout the year, is detrimental to soil fertility. It also makes the crops easily susceptible to pest attacks. Crop diversification can help maintain a better soil structure for long-term sustainability.
4) A good proportion of the crops that are currently imported could be substituted through domestic production. Wheat is such an example: while the issue of taste was a constraint to increased wheat production and consumption in the mid-1970s, wheat has gradually become part of the rural diet. Not only does it require less irrigation than rice (see: crop water requirements), making it ultimately less costly to produce, but it is also far less damaging to the environment. On the other hand, climatologically constraints limit prospects for increasing wheat yields significantly.
6) With the significant decline in jute production, together with the limited opportunities and intense overseas competition for rice exports, diversification is essential for agriculture to break into export markets and continue to make a significant contribution to GDP.
There are some obvious obstacles to agricultural diversification which need to be addressed. The development of modern technology for rice and wheat has impeded the development of seeds for other crops and reduced the competitiveness of pulses and oil-seeds, which are important sources of protein for the poor.
Additional research is needed to develop suitable HYVs and to make them competitive with modern varieties of rice and wheat. There is also an inherent difficulty associated with inter-crop conflicts arising from competition for limited land area. Potatoes, vegetables, bananas, onions and spices are all easily produced in Bangladesh. However, up to now, storage and transport infrastructures have not been substantive enough to inspire the adoption of these crops on a large scale. Farmers have been discouraged by the high price risks associated with the marketing of these crops. Moreover, there has been inadequate extension of on-farm water management technology for non-rice crops. For a crop diversification program to be successful, it will be necessary to create effective demand for the output through price support policies, education and consumer motivation and by ensuring a viable market with appropriate import and export policies.
Problems and Prospects of Small Business Development in Bangladesh
Curtis E. Tate, Jr. and his co authors in their book “Successful Small Business Management” (1982) define small business as “An organization with a name, a place of operations, an owner, and one or more workers other than the owner.”
The Federal Reserve Bank of USA says small business is one which “is independently owned and operated but is not dominant in its field.” In the Small Business Act of 1953, the US Congress gave the same definition of small business.
Definitions in the Context of Bangladesh:
“Small industry means an industrial establishment or unit which is rum mainly by hired labor and not using mechanical motive power but does not normally employ more than 50 workmen and whose land, building and machinery does not exceed Tk.150, 00,000 in value in either case.” – E. Pakistan Small Industries Corporation Act of 1957.
Characteristics of Small Business Enterprises:
There are many characteristics of small business. Some of which are described in the following paragraph:
Unity of Individuals and the Organization
The strength of small business is that individual employees retain their personal identities, yet support the unity of the organization. Employees understand and commit themselves to corporate objectives.
High Individual Motivation
Individuals are highly motivated for further exertion and organizational development. Though pay for performance is a principal motivator in a small business, comfortable and social life related workplace plays a role of the social motivator.
Owners as Managers
In most of the small businesses, owners are responsible for managing the firm. The employees are hired on owner’s discretion. Owners are responsible for taking any and all management decisions.
Streamlined Communication
With simple and petit structure of the organization, good and effective communication are maintained with and among employees. This keeps the organization more susceptible to changes in the business arena.
Supportive climate for Organizational Integration
Management including supervisors keeps close relations with subordinates. They offer training, encouragement and counseling to subordinates for problem solving. Employees are provided with challenging and enjoyable workplace.
ADVANTAGES OF SMALL BUSINESS:
The small business has many advantages over its larger counterparts. It does not have access to huge resources, numerous employees strong financial backup, or the professional management of the big businesses, but it does posses some distinct advantages that are only its won. Because of small percentage of income that goes for overhead and non-revenue-producing activities, there are still some functions that can be performed more efficiently by small business enterprises than by large ones.
Growth
Small business helps entrepreneurs develop as an individual and expand their personal abilities. Their growth might have been hampered had they been employed under the guidance of a supervisor in any other organization. Ambition also motivates entrepreneurs and makes them hang in there.
Provides self employment opportunities
Small business helps people provide job for themselves. Sometimes employment opportunities are limited in big industries. There are losing big firms that are frequently cutting back, closing plants, and laying off people. This creates unemployed people in society who are otherwise capable of performing various jobs. The area of small business can provide a much-needed source of new employment. This shows the important contribution the smaller firms are making to their respective notional economics.
Flexibility
Large corporations often lack the flexibility of small business because of the complex organizational structure, established bureaucracies, and high overhead costs. Decision making in the small business frequently depends on only one or two persons. The management and the workforce in the small business may be more adaptable to change than those of the large corporation. They can react more quickly to changing market conditions or to modify a product for a customer more easily than could a large business.
Better Inter-personnel Relationships
Both managers and staff in the small business are treated as individuals. Managers are given freedom and decision making and provided with variety of responsibilities. Staffs are encouraged to innovate there by reducing boredom in the workplace. Lines of communication are direct between owners and employees.
Independence
Small businesses give its owners the liberty or independence to come go as they please. Owners of small business enterprises have a degree of freedom that are not customary for managers in most big corporations this freedom encourages self-motivation. Often this freedom of small business owners means the right to work harder and longer hours than they would if they were employees of big business. However, the psychological and financial satisfaction arising from enterprise ownership is powerful rewards for the risks of going into business for oneself.
Quick decision
As the owner of the business does all in all in that particular concern, the owner does decision-making mostly. So the decision is taken relatively quickly because he or she does not have to discuss other people or superiors to take the decision.
Disadvantages of small business:
The small business has their share of disadvantages too. These disadvantages have multiplied in the current years due to increased management problem in recent years.
Inability to cope with growth
Sometimes, the factors that are advantageous to small business turn in to serious disadvantage when it is time to grow. Growth often requires the owner to give up certain authority. Similarly, growth also requires specialized management skills, which the owner may lack.
Management problem
Effective and efficient management is very important for the smooth running of any kind of business. A new businessperson often has the knowledge and skill to produce a good but will lack the necessary kills of planning organizing, staffing, directing and controlling. Yet the small business owner is often forced to become a generalist in management since he or she can’t afford to employ a specialized person having necessary managerial skills. Also they do not give the subordinates enough responsibility to manage.
Shortage of working capital
Shortage of working capital is the most predominant limitation of small business. For this limitation, they cannot take the advantage of economics of scale. They cannot take the advantage of discounts given for bulk purchases. This leads to the inability to cope up with their larger competitors in new facilities, equipment, tools, and methods.
Lack of coordination
Another disadvantage is the lack of coordination between production and marketing. That is the failure to balance and coordinate these to critical functions. It is important for small business to keep judicious balance among:
Having too few products so that the orders of potential customers have to be turned down.
Having too big inventory as to bear too much inventorying and maintenance cost.
Diversifying too fast. The advantage of diversification and the advantages of product specialization should be balanced.
Lack of effective selling techniques
Small businesses usually don’t have the access to specialized person at marketing. So, they lack in scientific market research, specialty advertising and personal selling. As a result sales are comparatively lower than the larger enterprises. Location of the head office and the accessibility does affect the sale to certain degree.
Situation Leading to Formation of Small Business:
The formation of small business is a result of certain situational advantages it enjoys. These advantages help small businesses to be a part of any economy. Apart from relaxed government policy, the followings are the situations where small businesses have an edge over their bigger counterparts.
ntroducing new product or idea
There is always a risk involved in introducing a new idea or product. In case of a radical innovation, market reaction and consumer acceptability need to be tested. It is therefore, preferable to introduce the product through a small firm, which ensures less risk factor on investment.
Having a Local Market for the Commodity offered
In certain form of business, operation in a larger market is not economically viable. For instance, it will not be economical for a restaurant to sell its product to a large market. Such scale of operation exceeding the local demand would cause inefficient use of resources. Therefore, a small firm does better in a small scale.
Availability of Limited Market
When the market is limited, small business is the best choice. In a monopolistic competitive market there is little possibility to grab a substantial market share. In such case, small business offers better returns.
Case Studies (Opinion of some entrepreneurs)
While preparing this essay we had to go to a couple of Small Business firms. We ask them several questions about the problems they usually face in launching and operating a Small Business firm. There answers were quite a bit similar. But they talked about several of problems. We came to know about the common problems faced by Small Business firms in Bangladesh. We went to:
1. 'Key-Kraft' - a boutique and fashion house,
Aishan Shopping Complex,
Malibagh, Dhaka - 1217.
The persone we talked with: Md. Shakhawat Hossain.
2. 'Zamdani' - a Zamdani Sharee manufacturing and retail house,
Section 13, Mirpur,
Dhaka -1216.
The persone we talked with: Khandaker Rauf.
3. 'Dotcom' - a cyber cafe and software developing firm,
Road no 1, House no. 23, PC Culture Housing Society,
Shekhertek, Dhaka - 1207.
The persone we talked with: Tanvir Hussain.
4. 'Adarsha Murgee' - a firm for broiler chicken,
Vill. Chandana, PO. Chandana,
Gazipur - 1702.
The persone we talked with: Md. Kanchan Howleder.
For better understanding we will present this section in a different way. We made a questionnaire and the above persons answered these questions. The questions were as follows:
1) How did you manage your capital?
2) What problems do you face in collecting raw materials?
3) Is political instability affecting your business?
4) What is the effect of our social insecurity on your business?
5) Do you have any problem in distribution and transportation?
6) How do you manage labor problems?
7) What technique do you follow to increase sell?
8) What is your future plan?
Their answers are going to be discussed now:
Our first question was about collecting capital for the business and we got most frustrating answer on regarding this question. Three of the above four had to collect their capital from personal financing source.
They used their personal deposit and then borrowed from their friends. For example Mr Shakhawat from 'Key-Kraft' just hates commercial banks as a source of financing. He started his fashion house a couple of year back. At first he took the position of that shop and had only ninety thousand taka in his hand at that time. Then he applied for the loan. Bank officials answered positively and told him to decorate the shop to make it attractive to the customer. He then decorate the shop by an famous interior designing firm spending the rest of the money he had in his hand and borrowing some more from the friends. After decoration the bank officials deny to give him the loan saying that the place chosen for the shop is not very appropriate for a fashion house. It was totally unexpected to him and he got a great shock. He felled in a great problem that he already spent his entire fund hoping to get the bank loan. "I can’t even sleep at night thinking for the money. I need to refund the loan I took from my friends. But I don’t had nothing in my hand" said Mr. Shakhawat. Then he sold his motorcycles and some of the home appliances he used personally. He also had to sell some of his land in his village. After that we all know the rising story of 'Key-Kraft'. Now it is a leading fashion house of the city. It enjoys a turnover of more than two million taka per year and it is receiving a more than ten percent of increase in sale each year. At Gazipur we got totally a different story. Mr. Kanchan recieved a loan of twenty thousand taka from 'Grameen Bank' Joydevpur branch. He had his own land there and established a broiler firm. Now one can go there to hear his success story. He repaid the loan in time also. The rest two Small Business firms we visited did not respond positively about a loan from the bank. They had to finance from their personal fund. But all of them told about this capital problem and identified it as the major obstacle for this sector.
We found the problem for raw material is the second major problem that a Small Business firm face, identified by Mr. Kanchan. According to him this is actually the basic problem for all Small Business firm concerning agricultural production. He personally suffers from very instable supply of food for his chickens. It is not possible for a farmer to produce the food for his chickens as well as producing egg and meat. He must depend on somebody for chick food. "Sometimes I don't know what to feed my checks next morning". Though he is willing to pay quite a handsome amount of money for these but there is no sufficient supplier for this. It is a very disturbing problem for Mr. Rauf also. He needs sufficient quality thread to make a 'Sharee'. But in this sector everything is against them. He never get the thread in time. As it needs a different kind of thread to make a 'Zamdani Sharee' it is not possible to by available thread from market. He must depend on limited suppliers and sometimes on the government. Very often he doesn’t get the supply and there is nothing to do but stop the production.
All the Small Business firms we visited identified political instability as the third obstacle to Small Business development in Bangladesh. It is not possible for them to run the business in this condition. Mr. Kanchan said that his 1300 chicken died in the 1995.That time his business was new and it was a very big loss for him. Mr. Tanvir told very angrily about problems from political instability in his business. His business is depending on customer service. No customer no profit. Here is no chance to produce a good and sell it later. In 'Hartal' he cannot open the shop and so a great loss. As he bought twelve computers for the browsers it needs a big fixed cost. If this condition goes on he may be declared as a bankrupt. He is an example that how a enthusiastic entrepreneur can become a bankrupt by a bad system. The rest two also complained about this unhealthy condition.
Last June Mr. Shakhawat had to stop his fashion house for 22 days. This is all about the social condition of Bangladesh. "Every month I need to pay around ten thousand taka to various toll collectors", said Mr. Shakhawat. This happens so often that it is no more a abnormal matter to us. Now a days we call these illegal too collectors as 'Chandabaz". Mr. Tanvir had to pay around 50 thousand taka to these gunmen at the beginning of his business. "These people are making our life hell", said Mr. Rauf. "They take several thousand taka each month, moreover sometimes they take costly 'Sharee' without any payment. "We people are trying to protect them as much as we can but it is not so easy a job", said Mr. Kanchan from whom some gunmen took 50 chicken for their picnic last January.
About transportation Mr. Kanchan has a lot of complain. Sometimes his chickens die before reaching to the city. 'Zamdani Sharee' also suffers from lack of transportation. Labor affair is another problem. Skilled labor is a basic need for a Small Business firm. Mr Rauf told they suffer from this problem very much. It takes a couple of month’s time to train up a obis labor. But after learning period many of them leave the job without any prior notice. It is very disturbing. Sometimes a few labors try to interfere about the internal management and about the production. This is really unexpected. As giant companies can do the Small Business firms cannot spent a lot of money in advertising. They emphasis on personal selling. This sector doesn’t get much exposer for their product.
The last question is about the future plan. Here we were a bit surprised that none of them could tell us about a definite future plan about their business. All of them uttered some common words saying that I will try to increase sale and expand my business. From them Mr. Rauf told about an interesting plan that he would try to make his 'Zandani' the most exportable item of Bangladesh.
Common Problems
As we got some real life idea now we will try to find out where the problems actually lie. In Bangladesh there are a lot of Small Business firms but all of them can not succeed in their business. It is very hard to operate and make a business profitable here. It is also not very easy to start a new Small Business firm. In this part we will try to identify the key problems that a Small Business firm faces in its establishment and operating period.
The major problem a Small Business firm faces in its establishment period is the problem for capital or sufficient financing problem. The key to a Small Business success rests mostly on the ability of the entrepreneur to raise adequate amount of fund for infrastructural development as well as meeting the day to day working capital needs. One of the first questions any potential entrepreneur must ask is, "How do I get the money"? The type of the business may be anything but the money necessary for finance is must. Without necessary fuel (money) no ship (Small Business firm) can run. Plant or fixed asset, financial needs include purchasing land and buildings, machinery and equipments, furniture, vehicles etc all of these require a huge amount of money. In a country like Bangladesh it is not very easy to arrange a satisfactory capital to buy all these. As it is about Small Business, there is no chance to raises the capital from share market. Only personal and family funds and personal loan from the friends are major source. But in this way it is very hard to raise a sufficient amount of capital.
As we use to see Bank as a financing agent, it is very normal to think that one can get a loan easily from the bank. But the true story is far from this imagination. It is really a hard job to get a loan from a commercial bank for a Small Business firm. It is almost impossible for an inexperienced entrepreneur to manage a loan from a commercial bank. There are a lot of formalities and paper works need to be completed to get a loan. If any one wants to apply for a loan he must show some influential guarantor, a certificate of citizenship, character certificate, certificate of previous business experience, a letter of permission for the business from authority etc. with the application paper. Sometimes it is also necessary to make (?) please the associated officials of the bank. All of the work needs to be done before getting the loan. After doing all these no one can assure about the loan to be sanctioned. There are some other inner story too. Actually banks and other financial institutions are not really interested about giving a loan for a Small Business firm. But they are ready to help the BANKRUPTS.
There are some other sources for finance - micro credit by NGO, charitable foundation, bond, Small Business financial bank, trust company, mutual fund etc. From all these except NGO none of them have any good record of financing Small Business. But there are some problems with NGO. Although they claim that they have a very high percentage of returning loan back but its only the one side of the coin. The other side says quite different a story. Sometimes they distribute loan to very much needy entrepreneurs in a high rate of interest. It is also often said that some NGOs practice some unfair way to get their loan back. They create much pressure to refund the loan. Sometimes they take away personal property of the loan receiver on force if he is unable to pay back the loan. A few debtors even got suicide enabling to refund the loan.
Lack of necessary raw material is another problem. Everyone need run and run for raw materials. Here we don't have a definite supply chain of raw materials and the producers. Entrepreneurs are ready to pay necessary money for it but there is no instable supply. Sometimes there is nothing found when necessary, sometimes all are very high in price and sometimes adequate raw materials are in the market and it is more than necessary.
Another major problem of Small Business development in Bangladesh is lack of necessary government planning’s to up this sector. 31 years already have been passed after our independence. But still today we suffer from sufficient planning. Company and Small Business is very different. So this sector needs a special attention from the government. The procedure of distributing loan is not very easy. Still there is no plan that how many Small Business firms is to be financed each year. Government finished there duty by installing a few training center for potential entrepreneurs. But the central controlling is inadequate. There is nobody to monitor the whole activities. No one to suggest that how many entrepreneurs should be trained for what.
Every business needs some power supply and some other public utility services. Electricity, Gas, Water, Telephone etc. are some prerequisites for a business. In Bangladesh only the sufferer know how tough it is to get those connections. You need to pay a handsome amount o bribes to a invisible hand. In case of telephone you might have to wait for more than years to get connected. All these hazards are hampering the Small Business sector in Bangladesh.
Political and social instability is another big problem. Whether it is a giant company or a Small Business the success of a business is greatly dependant on the political and social stability of a country. Every business firm is dependant on production or purchasing and selling. This is the blood stream of a Small Business firm. If any of these two is stopped no Small Business can exist. It is possible for a giant company to stop all its operations for a couple of months and then start it again. But a Small Business firm can not do this. In Bangladesh our political and social climate is not stable at all. There is a condition of pre-war between the ruling party and the opposition. Always they are face to face with each other. Very often they call ‘Hartal’ and strikes. Such a loss can not be sustained. In the period of 1991-1996, 173 days of ‘Hartal’ were been called in total. It was 140 in 1996-2001 sessions. This is almost impossible for a small business firm to continue its operation in such a condition. They can not sustain this loss.
Now a day’s terrorism is becoming the cancer of Bangladesh. Above discussed political instability is the reason for it. This terrorism is also hampering this Small Business very much. Toll collectors are very daring and create pressure on the businesses to collect illegal tolls. As the Small Businesses already suffer from lack of financing it is similar to death to them when they have to please the toll collectors. There are terrorists and toll collectors all and everywhere in Bangladesh. If one tries to launch a Small Business firm he needs to pay these tolls in a number of places. Otherwise those people may stop its operation and sometimes more. One need to pay for it while buying or constricting a house, purchasing raw materials, transporting to the factory, selling a good; in all places. There are also weekly, monthly or special tolls in any religious festival one need to pay. Terrorists are becoming daring day by day. In recent times they kidnap entrepreneurs and businessmen if they don’t get the money. This condition is a serious obstacle for the development of Small Business in our country.
Now let’s have a look at some internal management problems of Small Business firms. From any giant company to a cottage shop good management is a must for success. It is a challenging job to manage a Small Business firm here as they need to compete with giant companies. Management people should know all the arts of management. In our country higher study on business management is a new concept. Bachelor degree in business administration is being awarded form IBA for eight years. So a lot of management personnel of Small Business firms are without any formal management study. They are not capable of managing, specially a Small Business firm. They cannot take appropriate decision in the right moment. These under trained people create a lot of problems.
* -Cannot identify target market or target customer.
* -Does not plan.
* -Believes advertising is an expense not an investment.
* -Only primary knowledge of pricing policy and strategy.
* -Cannot identify trading area.
* -Cannot delegate.
* -Believes loan would solve every problem.
All these problems are usually created by an unskilled management people. And it is it is more that skilled people are not available in the market.
Another common problem of Small Business development in Bangladesh is problem of distribution of goods. It is natural that a new product needs to go through a strong completion from other similar products. Small Business firms suffer from lack of distribution as they cannot compete with the giants. Another point is about our customers. They are very conservative and very much brand loyal.
These are the major problems that our Small Business firms usually face while operating.
Suggestions to Improve the Small Business Sector
Here we are giving some suggestions that may be helpful to improve the Small Business sector in Bangladesh.
As capital is the major problem for Small Business development in Bangladesh special emphasis should be put here. Commercial banks should finance Small Business by giving them loan in low interest and for long term.
* NGOs are very active in this sector. There activity should be spending all over the country.
* Government should make definite plan to boost up this sector. Youth development department should be more activate. Their fund needs to be increased and rules should be more flexible.
* Special ministry can be made to coordinate all this.
* Government can give some subsidies to boost up this sector.
* Taxation rules should be more flexible for Small Business.
* It should be assured that the Small Business firms will get sufficient raw materials in lower cost.
* Political and social instability should be maintained. Terrorism must be sustained and keep under control.
Red tapism must be abolished. Corrupted officials need to be punished and replaced.
It must be assured that the Small Business firms will get public utility service connection without any delay and bribe.
A syndicate can be made to help the entrepreneurs and to support this sector.
Conclusion
As we discussed all these it is clear that there are a lot of problems that Small Business is facing. It has many positive effect and some drawbacks too. We cannot build some giant corporations like Microsoft or Sony Electronics overnight. But we can launch a Small Business firm easily. We can employ a number of unemployed people in this sector. In today’s super market's and giant corporation's world as Small Business is still alive and transacting thousands of million of taka each year it can be said that Small Business firm can take a very important role in our economic development. So in my opinion the prospect of Small Business in Bangladesh is very bright.
References:
1) 'A Study on East Asian Economy'; by World Bank; page: 31 - 407;
Publisher: University Press Limited; 1981.
2) 'Developing Careers on Small Business'; by Monjurul Akhter; page: 1 - 34, 67-286;
Publisher: Maola Brothers; 1998.
3) 'Entrepreneurship and Lives of Successful Entrepreneur'; by Dr. A. R. Khan; page: 2 - 165;
Publisher: University Press Limited; 1986.
Notes:
1) Grameen Bank - A Micro Credit Commercial Bank.
2) 'Hartal' - Srike.
3) IBA - Institute of Business Administration.
4) Microsoft - Software giant of United States.
5) NGO - Non Governmental Organization.
6) Sony - Japanese Electronic giant.
6) 'Zamdani Sharee' - A garment used by East Asian Ladies.
8) US - United States of America.
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