Managerial accounting of Maroc steel

Maroc Steel Maghreb Steel Company
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Abstract
This paper provides an analysis of Maroc steel or Maghreb steel company in reference to the production costs, the pricing, the overall margins or net profit generated by the company and how that aspect impacts on the balance sheet over time. The essence of the report is thus to illustrate and explain the various approaches that may be adopted for purposes of cutting down on the costs or overall expenditure for the firm. The research outlines the various approaches that have been adopted by the company as well as the possible considerations /recommendations of strategies that may be cost efficient or beneficial to the firm. Maghreb steel is a profitable company as determined from the asset and liabilities net figures provided in the balance sheet extracts provided but the net profit is rather moderate or small in comparison to the total net assets and liabilities but the bright side is that the company is profitable. In nutshell, the report is an assessment of Maghreb steel position in the market in relation to the market factors as well as competitors and how the profitability can be improved.
Introduction
This research on managerial accounting overheads and costs analysis is based on Maroc Steel also known as Maghreb Steel Company. Information has been sourced from company employees previously worked with and the managing director’s Mr. Youssef Sekkat representatives on some of the approaches utilized by the company in managing the costs incurred.

The Maghreb steel company is a metals and mining company that is located in Casablanca, the Moroccan capital. Maroc steel specializes in the production of flat steel components and also handles marketing and distribution of its products. The company’s portfolio of metal products includes the rolled steel, painted coils of steel which have been galvanized as well as other galvanized pre-painted metals. The firm was incorporated in 1975 and has been operational since having the end of its financial year marked 31st December of every financial year. The company majorly incurs costs in the industrial and manufacturing department, the fabricated metallic products, component production/manufacturing and sheet metal processing or manufacturing. CITATION PRI17 l 1033 (PRIVCO, 2017)Maghreb steel produces flat products that include the general categorization of different kinds of metals and products thus illustrating the wide portfolio that is controlled by the firm in relation to the Moroccan market. Therefore, costing becomes fundamental for the firm to break even and make profits when the standard accounting procedures and methods are employed thereby manifesting the financial soundness of the firm. The various costs incurred or absorbed are allocated on a unit basis for all the products that the firm produces. This ensures that the costs are spread out, the overheads allocated and the respective margins attached to yield the different respective prices of steel products that the company produces.
Cost Analysis
Cost analysis has become of prime importance for the company as it needs to properly allocate costs and set the appropriate prices to obtain the highest margins and the most optimal results. This aspect has been highlighted due to the increased debt levels of the firm which has risen to over $600 Million that has been largely been incurred in the production/manufacturing process. The company’s restructuring has been effected with a medium strategy adoption as the long-term costs allocation/ and growth pattern is mapped out for future years. The international competition in the production of flat steel products has been a major factor that the firm has had to contend with over time thus making somehow strenuous to penetrate markets and capitalize on the demand for flat steel products. Domestic competition for instance has been illustrated for the recent years where Maghreb steel produced about 1 million tons per year of slabs and the main domestic competitor, Sonasid, had a production level of up to 800,000 million tons per year (billet metal) within the first 10 months of 2015 which grew by about 5.2 % annually every year since then. CITATION Ara15 l 1033 (Arab Steel, 2015)Cost Differentiation
Prime Costs
The prime costs are the main costs in the production process or the manufacturing processes which reflect the prices set for flat steel produced. The prime cost is the cost of sales plus the labor costs incurred in the production/manufacturing process. In this is case ,Maghreb steel costs of sales includes the costs of raw materials incurred, the electricity costs incurred in heating as well the overall manufacturing process, the gas costs used in transportation and all other overheads incurred in the conversion of the raw material metal into the various product categories that are produced by the firm. These metals are combined with the existing opening stock as purchases and the closing stock is excluded to get the main figure of the costs of sales. The addition of the labor costs to the cost of sales yields the prime cost which is basically the overall costs of manufacturing the steel components.
Cost of Sales Analysis
The company’s sources insisted on the management of the cost of sales as key to having higher margins. The process is broken down from the start and since the production is done in batches, then each process in the steel production has to be done with accuracy to minimize the level of losses/wastes and therefore, less overall costs. The computation of costs is obtained on a collective basis and broken down into the different units or components through a division method so as to obtain the cost of producing one unit of steel components. Therefore based on the type of steel metal produced in different processes, the total raw material costs, electricity costs, gas costs and labor costs are totaled and divided by the total number of units produced for that particular category of steel product or the total number of labor hours. This method of computation enables the allocation of the total costs and overheads to each unit of steel component thus, achieving an equal distribution. Such a production or manufacturing system only allows for the cost reduction or monitoring to be done in a holistic approach. The unit variability in terms of cost is thus later analyzed to see the effect of the approaches used in costs regulation. The firm is thus able to price the different products in the best possible manner at prices that are relatively competitive in the market in light of the increased competition or increased supply of global steel.
Specific Examples
Maghreb steel produces cold roll steel, the incorporation of a continuous production which facilitates efficient production. The existence of an accumulator for the metal sheets enables the pickling tanks every time the welding process for a new coil begins. Therefore, it is possible to manufacture /clean the metal sheets at a higher rate for instance up to 360 meters per minute. A smaller looping system enables continuous line processing which creates efficiency and overall cost reductions. The use of basic oxygen steel production has enabled the collection as well as recycling of emission gases in a more organized reduced manner thus higher efficiency levels and reduced overall costs for controlling the level of air pollution. The other reference is the use of the continuous casting method which has enabled less energy consumption which has led to reduced overall emissions of gases. Continuous casting method has the advantage of increased production of steel, better /higher quality production, more energy efficiency through energy saving and more fundamentally, the decreased overall capital as well as operating costs. These illustrations effectively result to overall costs reductions which ensure that the production prices /costs are toned down thus the ability of the company to generate higher margins or higher profits through the same level of markup charged. These efficiency avenues enable the firm to have the leverage of reducing the prices of steel products in case of excessive competition from other steel metal producers. This aspect inherently makes Maghreb steel more competitive and thus a higher performance level.
Other Cost Control Aspects
The total costs of production and selling the steel individual units approximate to about a third of the steel selling price which means the rest remains as mark up and miscellaneous costs.
Inventory Management
The inventory management system adopted by the firm ensures that the firm monitors and absorbs all the costs involved in the production process. However better inventory systems are scheduled to be adopted by the firm according to the sources. The introduction of a just in time (JIT) inventory management system ensures that the production of steel is done on an order basis after production of the requisite normal threshold that meets the normal demand. The existence of a system that allocates costs of production in real time shall ensure that the firm does not incur excessive production costs that cut into the firm’s margin through the inventory that is not sold. Therefore, the production of inventory on an order basis ensures that the appropriate cost levels are determined and distributed as per the forecast demand thus optimal production and profits.
Economies of Scale
Maghreb steel may also source its raw materials at a higher level than the current level of operations if the firm manages to properly institute and moderate the high debt levels which shall ensure that the firm gets some of the lowest costs of raw material deals. The subsequent purchase in bulk enables the suppliers of raw materials to provide such produce at low costs which significantly benefits the steel company in regard to the cost implications. Maghreb steel company may opt for this method in order to fully integrate the low costs in the overall production costs.
Yield or Gains from Products
The firm evaluates the margins for the respective range of steel products in order to determine the less costly, most profitable products from cold rolled steel to the billets thus enabling the firm to increase production of the most plausible product with regard to demand. In light of the increased competition, the firm may also capitalize on its highest demand product through increased production. The Maghreb steel company may also identify the market gaps through under-produced steel products and increase production to fill those gaps thus increasing the overall revenue stream and dissolving the overall costs of production.
Higher Efficiency Production
The Maghreb steel company may engage in higher efficiency through optimal production. The use of current technologies in the steel products such as the casting method facilitates the increased production reduced emission of greenhouse gases that are harmful to the environment and harmful to people as well. Such efficient method of steel production ensures that there is an overall reduced cost of production per unit. This aspect may be incorporated and the results compared to the companies’ financials that were introduced before the incorporation of the new technology. This is one of the considerations of Maghreb steel company as soon as it has a solid footing on its financial aspects.
Labor Costs
Labor costs are the company’s main variable costs based on the performance level. Maghreb steel has a higher number of semi-skilled laborers compared to the skilled ones, therefore, illustrating a large pool of lower labor costs compared to the former. The employees are paid per hour which essentially means the labor overhead absorption rate is based on the daily or weekly hours worked for the semi-skilled laborers. The skilled laborers are paid a salary or a monthly basis which is usually higher than the wage based arrangement. The semiskilled employees are the hands-on personnel with tertiary skills in the manufacturing houses or production points and those loading, packaging and transporting cargo. The skilled employees include the accountants (management accountants), the managers, the engineers and the finance personnel who work on costs, scheduling and the most appropriate production means.
Labor Cost Management
Retention
Maghreb steel focuses on employee retention through appraisals, allocation of benefits and the provision of a convenient operating environment. The net effect of such a measure is to retain key employees both skilled and semi-skilled by avoiding poaching of employees by other companies and the retraining costs of employees which is subject to incremental costs for the firm. Therefore, facilitating optimal performance and the maintenance of employees benefits both the company (reduced overall labor costs) and the employees. The company also benefits from the ability to project /forecast labor cost expenses with minimal deviation.
Rotation
The movement of employees from one operational point to another ensures that the employees are acquainted with the necessary technical know-how of producing steel metal products/components at every production point. This aspect creates efficiency through the saved time of re-training employees and reduced overall costs of having a large labor force as the same employees can be rotated to different production points.
Subsequent Training
Maghreb Steel may also adopt a continuous training program that focuses on equipping the employees with skills on how to use new equipment and more recent methods of production. Regular staff meetings, reviews, the performance analysis enables the firm to be able to monitor employee progress and attain more optimal solutions. The more equipped employees become the higher the chances of success through higher performance.
Instituting Controls
The establishment of controls ensures that the firm has a number of employees who supervise or monitor the manufacturing processes. This aspect creates room for more accountability for the number of units produced and the level of waste/loss generated besides the normal losses that accrue. A classic example would be the number of steel products that have been produced and the number that has been sold, the records should match and the reconciliation should be done to ascertain the amount of inventory that is held up. This element of control enables the firm cut on losses and possible pilferage that may occur thus cutting down on the overall costs of the company. Basically instituting proper controls ensures that the production schedule goes as planned and that there is a follow up done independently (internally or externally) that ensures the right thing has been done. Although the controls’ aspect might incur additional costs, the overall benefit of the controls when aggregated becomes material and significant for the firm.
Proper Scheduling
Proper forecasting has been done by the firm based on past history patterns of the demand fluctuation therefore, this aspect has enabled a more consistent pattern to be determined in terms of the labor input that is required for the production of the steel components. The institution of a future schedule for employees for various shifts provides an efficient schedule that is likely to optimize production. This aspect enables the company increased its overall returns through increased production and the overall costs control.
Overheads Absorption
The additional cost factors for Maghreb steel that are not part of the steel production costs and the labor costs are classified as overheads. These costs are categorized in a specific manner so as to be absorbed in the company inventory for appropriate pricing.Advertising and Marketing
Maghreb steel has been intensively advertising its products within and outside of Morocco which creates a subsidiary expenditure that is significant for the firm. Increased competition for steel metal products globally and the reduced demand has necessitated more aggressive marketing strategies to enable the firm cut its market niche. These additional overheads are factored into the product prices on an overall unit production basis.
Recurrent expenditure (Depreciation, rent amongst others)
The additional costs such as depreciation charges fall under the miscellaneous overheads incurred which are basically recurrent overheads which are incurred by the firm. The total overheads are summed up and allocated to the products or inventory either on a unit basis or on a labor costs basis. The latter method involves apportioning the total costs as per the respective labor hours spent at each level or production/manufacturing point. This method has been employed by Maghreb Steel to apportion costs and yield a more realistic apportionment of overheads across the various stages or levels.
Conclusion
An analysis of the financial statements provided for Maroc Steel provides an outline of the financial aspects of the firm with the amounts of assets and liabilities having been provided for further analysis. A deduction that can be made is the amount of net profit that the firm achieved in the 2017 financial year which has been factored into the balance sheet on the credit side. The net figures are as follows:
Net assets =capital plus liabilities plus net profit
Approximate figures:
553B = capital (338B) + Net profit (NP) + Liabilities (211B)
553B-338B-211B= Net profit
4B = Net profit
Maroc steel or Maghreb steel company makes some profit in its operations despite the inherent growing competition. The firm however needs to increase its competitiveness through more acute approaches such as the JIT inventory system, the institution of internal control of all the activities and the regulation or minimization of all the costs that are accrued by the firm in order to achieve overall higher margins and more profitability in consideration of the going concern aspects of the firm. Such a measure shall also have a positive contribution to the overall growth of the net asset base of the firm over time thus positive growth.
References
BIBLIOGRAPHY l 1033 Arab Steel. (2015). Maghreb steel targets positive operating income by 2017. Retrieved 2018, from Arab Steel website: http://www.arabsteel.info/en_news_view.php?id_FULL_SHOW=160
PRIVCO. (2017). Maghreb Steel. Retrieved 2018, from Privco website: https://www.privco.com/company/maghreb-steel_private_stock_annual_report_financials