Management Accounting of Top-Cables Company and Norton Company - Case Study Example

Portfolio Assessment Name Institution Professor Course Date Portfolio Assessment Part I: Top-Cables Company Top-Cables Company focuses on manufacturing and marketing electrical cable products within the context of Australia. The primary product of the company is the best produced in Australia. It is essential to note that the business entity operates in a very price-competitive industry hence the need to adopt and implement valuable strategies for the business entities to achieve competitive advantage. Currently, there is a disagreement in relation to adoption or cost or profit center responsibility-accounting system thus the need to focus on harmonizing the issue towards the achievement of the goals and targets of the business entity. In assumption that Top-Cables Company’s overall goal is profitability, there are certain critical success factors. A critical success factor refers to the variable, which tends to meet the two criteria: it is largely under the company’s control and the company must succeed in this area in order to reach its overall goal of profitability. From this illustration, critical success factors tend to measure how well an organization is achieving or accomplishing diverse strategic plan and objectives in accordance with the needs and preferences of the consumers. These success factors have the obligation of steering the company towards fulfilling the mission and vision statements in relation to strategic objectives because of customization of the factors to each business entity. In order to achieve profitability, the Top-Cables Company should focus on critical success factors such as quality, cost, customer satisfaction, increased revenues and sales, and substantial market share. These critical success factors prove to be under the control of the company. In addition, the factors have the ability to improve profitability levels of the business entity in the market and industry of operation. In the case study, it is essential to note that two responsibility-accounting systems are available for exploitation by the Top-Cables Company in pursuit of its goals and objectives in the competitive market and industry of transaction. From the above critical success factors: quality, cost, customer satisfaction, increased revenues and sales, and substantial market share, it is ideal for the Top-Cables Company to focus on the implementation of cost-center responsibility-accounting arrangement. This is because of the tendency of the approach to offer consistency in the operations of the business entity towards realization of the critical success factors. The cost-center approach will be vital in the improvement of effectiveness and efficiency in the achievement of competitive advantage. Since the organization has no control over the prices of its products in the market and industry of transaction, it is ideal for the business entity to focus on the cost-center approach with the intention of concentrating on quality, cost, revenues, and customer satisfactions. These attributes are essential in the achievement of high profitability levels in the course of the financial year while reducing the cost of manufacturing as well as improvement of effectiveness and efficiency in the development of products in accordance with the needs and preferences of the consumers1. In the case of Company’s sales districts, it would be ideal to adopt and incorporate revenues or profit-centers responsibility-accounting arrangement would be the most appropriate for the achievement of the goals and objectives in the market and industry of transactions. This is because of the ability of the approach to facilitate massive concentration of the quality of the products as well as satisfaction of the consumers in diverse markets of transactions2. Top-Cables Company should focus on the factors under its control, rather than success factors beyond its control such as the profit system and level in the market with reference to its sales districts. Theoretically, it is ideal for the managers to have absolute control over an item to be held responsible for in the course of executing their duties and responsibilities. This is because of the tendency of the external or internal factors beyond managers’ control to affect revenues as well as expenses under the responsibility of the manager. The revenue or profit center ensures that sales districts are responsible for the specified expense or cost items, which has the appropriate goal of long-run minimization of expenses while reducing the inappropriate short-run minimization of costs in the market and industry of operation. This center (profit-center) would be ideal for the achievement of critical success factors such as quality, consumer satisfaction, market share, and revenues for realization of increase in profitability levels3. Suppose that Top-Cables Company experiences rush orders from its customers, there is need to consider adoption and implementation of cost-center or profit center in the course of accepting or rejecting the rush orders from diverse consumers. In this context, with assumption that the plants are cost centers and the sales districts are revenue centers, the cases or incidents of rush orders tend to increase the production costs4. The plant managers’ incentives is to reject the rush orders rather than accept such orders because of the increase in the production or manufacturing costs. Rush orders contribute to massive increase in the production costs because of the increased setups as well as interrupted production and manufacturing platforms. On the other hand, the sales district managers’ incentive should be to push rush orders5. This is because of the tendency of accepting rush orders to contribute to increased satisfaction of the consumers as well as increased future businesses. The approach continues to generate a built-in conflict between the plant managers and the sales district managers. In the case of a profit-center plant, each manager has the obligation of considering costs and the benefits of a rush order. This is because of the increased product cost as well as the satisfied consumers hence the cost-benefit trade-off in relation to the rush order problem. Conclusively, I would recommend the Top-Cables Company to focus on the integration of cost centers at the plant while exploiting the revenue centers at the sales districts. Part II: Norton Company In the course of illustrating the Company’s budgeting process to Scott, Marge focuses on demonstrating the need to evaluate the recent history prior to discussing what is known in relation to the current accounts potential customers as well as the general state of consumer spending. In addition, the budgeting process then concentrates on adding the usual dose of intuition with the aim of generating the best forecast the organization can in the course of developing an effective budget. Furthermore, Pete notes the need to integrate sale projections as the basis of the projections in the course of developing an extensive budget for the company. The approach requires ideal estimation of the closing inventories making it a complex issue in the course of handling the needs and preferences of the company during budgeting process. From this illustration, it is essential to note that Marge and Pete are describing the usage of budgetary slack in the course of budgeting for the financial operations of the company. The objective of this second section of the assignment is to explain why Marge and Pete might behave in this manner as well as description of the benefits they expect to realize from the usage of budgetary slack. Furthermore, the second part of the assignment will focus on evaluation of the adverse effects of budgetary slack on personal and organizational levels. Budgetary slack refers to the allowance set for any extra expenditure that the company is going to incur in the fore coming financial period. The practice demonstrates the introduction of an ample amount of intentional allowance in budget for any other or miscellaneous expenditure the business entity is focusing on sustaining in the course of the financial or fiscal year. Business entity has two approaches towards introduction of the budgetary slack in the budgeting process. The first approach focuses on underestimation of the incomes or revenues with the intention of understating the profits of the business entity thus illustration of a negative financial position of the company6. On the other hand, budgetary slack is also possible through overstating the expenditures of the company contributing to reduction in the profit levels. From a common knowledge perspective, the goals and objectives of the company are set for the coming period along with the expenditures and incomes in the course of budgetary process7. In case managers and departments achieve these diverse goals and objectives, they have the opportunity to earn bonuses and additional rewards. This makes it ideal for Pete and Marge to introduction the allowances in the form of budgetary slack with the intention of gaining these advantages. The process enables such individuals to alter the figures in the sales and expenses to make them favorable to the managers8. In addition, introduction of the budgetary slack enables people like Pete and Marge to realize their goals set by the company while reaping the benefits from misstatement of the accounts within the business entity. The process is evident in the course of participative budgets, which provide the opportunity for all the employees to take part in making the budget thus allocation of huge allowances to the slack as well as misstatement of the sales and expenses in different departments. Moreover, Marge and Pete focus on adoption of the mechanism to demonstrate to the investment community that the business entity is routinely achieving the internal budget expectations. Nevertheless, the process comes out as unethical practice in relation to principles of accounting in the process of generating valuable budgets of business entities in the course of the fiscal year. This indicates that the business entity might suffer from negative implications in the usage or exploitation of the budgetary slack as evident in the case of the Norton Company. In the first instance, the approach interferes with the proper corporate performance since employees only concentrate on the incentive to meet or achieve their budget goals, which tend to be quite low during the fiscal year. From a personal perspective, Pete and Marge might suffer from negligence and incompetence in the course of handling their duties since they tend to work towards the achievement of the goals set at very low levels. Alternatively, business entities adopting this technique with reference to budgetary slack in the context of participative budgeting experience massive decline in the overall performance in comparison to diverse performance levels from more aggressive competitors focusing on stretching their goals. The illustration indicates that budgetary slack has long-term negative implications on the competitive positioning as well as profitability of the business in the market and industry of operation. Similarly, business entity might have the opportunity to underestimate sales while overestimating costs thus putting the company in a negative position from competitive and aggressive perspective9. This indicates that the budgetary slack demonstrates unethical management behavior contributing towards massive decrease in the business efficiency while inhibiting innovation nature of the business entity. It is essential for the business entities to adopt and implement ethical issues towards reduction of the cases of budgetary slacks to facilitate achievement of bonuses and rewards to the employees for accomplishing goals set at low level. Nevertheless, business entities should incorporate diverse mechanisms in the budgetary process focusing on the improvement of the profitability as well as competitive positioning of the company in the market and industry of operation. Bibliographies Armstrong, Michael. 2000. A handbook of management techniques. London: Kogan Page. Albrecht, W. Steve. 2007. Accounting, concepts & applications. Mason, Ohio: Thomson/South-Western. Young, David W. 2003. Management accounting in health care organizations. San Francisco, CA: Jossey-Bass. Riahi-Belkaoui, Ahmed. 2003. Accounting: by principle or design? Westport, Conn: Praeger. Chapman, Christopher S., Anthony G. Hopwood, and Michael D. Shields. 2007. Handbook of management accounting research. [Volume 2] [Volume 2]. Amsterdam: Elsevier. http://site.ebrary.com/id/10158348. Riahi-Belkaoui, Ahmed. 2002. Behavioral management accounting. Westport, Conn: Quorum Books. Weygandt, Jerry J., Donald E. Kieso, and Paul D. Kimmel. 2010. Managerial accounting: tools for business decision making. Hoboken, NJ: Wiley. Lee, John Y., and Marc J. Epstein. 2011. Advances in management accounting. Volume 19 Volume 19. London: Emerald. Hansen, Don R., and Maryanne M. Mowen. 2011. Cornerstones of cost accounting. Mason, OH: South-Western, Cengage Learning. Hansen, Don R., Maryanne M. Mowen, and Liming Guan. 2009. Cost management: accounting and control. Mason, Ohio: South-Western. Read More