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In the time that business has been around, so has the idea of cost and profit. According to research from Codjia (2017), cost pertains to money a business spends to acquire materials for resale or inclusion in its production cycle while profit equals total revenues minus accounting costs. Simply put, cost is what a business pays to work on a project while profit is the money they make minus expenses. The company selected for this research is Whole Foods. Whole Foods uses both cost estimation and profit planning to successfully execute its projects.
Keywords: cost estimation, cost management, profit planning, strategy
Cost Estimation and Profit Planning: Whole Foods
Cost estimation is a statement that gives the value of the cost. According to research from Blocher et. al. (2021), it is the development of a well-defined relationship between a cost object and its cost drivers. The purpose of the cost estimation is to predict cost. It helps predict future costs, identify key cost drivers, and is useful in planning and decision making. In research from Suwanjang and Prompoon (2012), cost estimation is one of the most challenging works to do because the information on cost is not known until the final stage of the project. However, the cost of a project needs to be estimated at the initial stage of the project to calculate a total amount that determines a project’s budget. Although cost estimation can be challenging, it is an essential part of the project that helps to manage all a project’s affiliated costs to keep the project on budget and deliver on time.
Profit planning is the set of actions taken to achieve a targeted profit level. According to research from Blocher et. al. (2021), it is a method of analyzing how various operating and marketing decisions affect profit. It is based on an understanding of the relationship between variable costs, fixed costs, unit selling price, and output level. In research from Parajuli and Shrestha (2020), profit planning is an income calculation. It is a pre-determination of the expenditures of a project. It predicts how much revenue will be generated and how it should be spent to meet the criteria for investment and profit. Profit planning is looking at the potential return on the investment into the project.
Cost estimation and profit planning are important aspects of managing resources that Whole Foods uses to successfully execute projects. According to research from Robertiello (2011), Whole Foods Market’s Midwest Region division uses a software recipe and inventory management control program. The purpose of the software is to value the costs related to its growing volume of food service and deli business. The software helps the division of the natural-food chain increase deli efficiency through margin controls and recipe information. It looks at the relationship between cost and cost drivers. The software helps in profit planning by calculating margin and food-cost information, leading deli officials to eliminate products when specific ingredients sometimes temporarily with fluctuating prices become too expensive. By looking at how operating and marketing decisions affect profit, Whole Foods is increasing profit by controlling margin and food cost.
Cost estimation and profit planning are a technique to count the cost. In the scriptures, it talks about counting the cost as well. In Luke, it says, “For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it? Otherwise, when he has laid a foundation and is not able to finish, all who see it begin to mock him, saying, ‘This man began to build and was not able to finish’ (Luke 14:29-30, ESV).” This scripture helps us to see that proper planning is important before we agree to a task or project. We need to analyze what is required and calculate the cost if we should accept or reject a task or project. For Christians, this is an important aspect of discipleship as we need to consider what it would cost and what is involved to become a disciple of Jesus. Business leaders would do well to incorporate counting the cost in business. Before investing time and resources into a project, a business should count the cost by estimating the cost and establishing a target profit.
Blocher, E., Juras, P., & Smith, S. (2021). Cost management: A strategic emphasis (9th ed.). McGraw Hill.
Codjia, M. (2017, November 21). Difference between accounting costs & accounting profit. Small Business – Chron.Com. https://smallbusiness.chron.com/difference-between-accounting-costs-accounting-profit-26278.html
Parajuli, D., & Shrestha, P. (2020). Strategic profit planning and organizational performance in public sector commercial banks of Nepal. Research Journal of Finance and Accounting, 11(22). https://doi.org/10.7176/rjfa/11-22-01
Robertiello, J. (2011, December 31). Whole Foods cooks up cost management for deli with software. Supermarket News. https://www.supermarketnews.com/archive/whole-foods-cooks-cost-management-deli-software
Suwanjang, H., & Prompoon, N. (2012). Framework for developing a software cost estimation model for software modification based on a relational matrix of project profile and software cost using an analogy estimation method. International Journal of Computer and Communication Engineering, 129134. https://doi.org/10.7763/ijcce.2012.v1.36