P22996 Accounting For Strategic Management- Assessment Answers

GPL’s management aims to achieve a profit margin of 20% from the manufacture of the premium widget.

According to GPL’s production manager, the production costs per unit typically includes:

Required:

a. Applying the concept of target costing, compute the cost gap for this premium

b. Suggest and discuss how the company could minimise or eliminate the cost gap.

Brownie Pte Ltd (BPL) is in the business of customising the widgets and reselling these to corporate clients. Both GPL and BPL are wholly owned subsidiaries of the Giant Widgets Group Ltd (GWG).

For years, BPL had been purchasing widgets from GPL and transfer pricing was based on “cost- ased transfer prices”. In the last one year, BPL’s management raised their concerns that the cost-based approach was unfair to BPL because it did not incentivise GPL to provide the widgets at competitive prices which reflect “market realities”.

c. Discuss the reasoning for BPL’s management raising its concerns. Suggest which pricing method is likely to be the most appropriate for GPL and provide explanation for your answer.

2. Charlie Pharmaceuticals (CP) is a specialty drug manufacturer operating in Asia. Due to a recent investigation on its drug pricing policy, it was often given negative press.

In addition, there was a recent recall of the drugs produced just over a month back. This has resulted in various government agencies investing CP and this has caused CP’s share price to contract significantly.

The management is very concerned on this and requested an assessment of the situation.

Required:

• Discuss the differences between external and internal failure costs. Suggest withreasons whether the external failure costs will exceed that of internal failure
• In light of the recall, suggest and discuss the significant risks which CP is likely to face

The report is all about the utilization of the Approach of Balance Score Card and the way in which the business undergoes the functioning and operating procedures. FC High Tech Manufacturer (FCH) is undergoes the manufacture of the goods of consumer and industrial nature. Further, it is a leader in the department of selling hand phones. Additionally, it has third department that helps the businesses with the solutions regarding the manufacturing processes that takes place in the enterprises.

The company had recently a situation of recession and the same has created an impact on the confidence of the markets. The company has used the traditional approach in undertaking the operations of the three departments and they have no motivation and objectives of modernizing their approaches. A situation has raised that shows that the board of directors had been performing assessment that has led to analysis and evaluation of the overall structure. The shareholders have been unwilling towards the provision of additional capital as it wants justifications towards the fresh equity requirement from its shareholders. The above points are considered in the report.

The report has also conducted an analysis of the implementation of the Balance Scorecard approach in the company and it will further evaluate the difficulties faced by the company and thus, the measures must be chosen in a manner that would create growth and development of the organization as a whole.

Existing Scenario in the company

The existing company is maintaining measures like the increment in the ROI, EBITDA and Revenue growth. As per the management the increasing trends in the overall revenue has a tendency to motivate managers so as to focus on the returns of short term nature. The managers must look forward to stabilize the long term goals of the maximization of the wealth of the shareholders. The overall efficiency and the effectiveness of the company will result in the maximization of the entire functions and the operations of the company. The stable position of the company and the overall increase in the functionality of the company will be a result of the blend of both short and long term functions and operating activities of the company. The higher stability and overall growth in both the internal and external functions is a must that must be attained to obtain the overall efficiency of the company. Thus, in the case of the Balance Score card approach, the internal, external, financial and even the customer’s feedback and approaches are attained that are discussed as under.

Implication of the Approach of the Balanced Score Card

The approach of the Balance Score Card must take amount the following analysis that is discussed as below:

Financial: The segment of the approach undertakes the financial performance of the organization.

Customer: The segment is related with the customer satisfaction and the attitude towards the market sector and organization.

Internal process: The segment is related with the goals that are within the internal business. The internal procedures are reviewed and processes that will lead to the development and growth of the company.

Learning and growth innovation: This segment of the approach of the balance score card is related to the training and learning provided to the human capital for innovation and growth of the overall organization. The training and growth will help in the expansion of the overall department. The trainers take into consideration the increase in the development and the growth of the entire organization (Johnson, 2014).

The growth and development of the company has a major dependence on the activities undertaken by the company. Thus, strong and important aspects of the approach mentioned above must be implemented towards the improvement and development of the overall organization. The internal growth of the process and the learning growth and innovation aspect also leads to the efficiency of the organization (Flage 2014). The use of the balance scorecard will also provide the following:

The vision, mission and other objectives of the company are implemented within the approach that leads to the transparency in the nature of the overall structure of the organization. After reaching the consensus, the management of the company will take steps that will affect the overall performances of the organization (Gavurová, 2012).

There will be communication of the objectives and actions that will lead to the effectiveness in the connectivity with the stakeholders of the company. It will also encourage and refine the processes of the company and thus the feedback processes must be strong of the company.

The planning and set up of the training procedure must be in alignment and there must be steps undertaken that will analyse and evaluate the targets desired and the there must be attainment of strategic objectives that will include the targeted measures.

Potential difficulties that can develop with the implementation of the Balance score card approach

The approach that will be implemented must have proper implementation as it will include numerous complexities that the company will face at the time of initialization. The prospective difficulties include the following:

Vagueness in the policy and strategy:

The policies and strategies must be forward looking and must have high standards that must be a part of the business organization. The Balance Scorecard has a lot of risks and threats that will be included with the advent of the implementation of the approach. The best policy must be effective so that the same can result in the refinement of the overall policies and the procedures undertaken by the company. The managers and the directors must take steps to revisit and refine the policies to create an effective overall structure of the company.

There must be clarity and transparency on the part of the business organization by creation of effective strategies and control. There will be addition of the desired goals and objectives for the translation of the overall company into the best structure possible. The targets have a nature of being medium, long term or of short term and the same will include the worth of the customers. The customer has certain needs and requirements that must be met by the business organization to get an effective structure. Thus, the company must take steps to include the required statements and the planning must be done within the period of horizon that ranges between five to ten years (Saunders & Cornett, 2014).

Lack in the defining structure of the significant objectives of the company

The policy of the company must be defined in a proper structure and the same must have a relation with the overall organization goals and objectives. The missions, vision, goals and objectives must be communicated with the stakeholders and the management for best achievement of the objectives. There must be a common language implemented to explain the necessities of the organizations of the business. There must be a conduct of meetings and other planning sessions that will increase the effectiveness of the company (Bhasin, 2012).

Difficulties developing with the initial implementation of the approach

There are a wide range of criticalities that will occur with the implementation of the balance score card approach and it is possible in the initial stages. In the initial stages of the implementation of the approach, it is possible that the management might get lost and affected with the technicalities and difficulties arising in the state of affairs of the business. A lot of confusion and complexities arise with the use of the strategy maps and the themes of strategy further helps the entities and individuals to get into the world of difficulties and thus, the initial stages of the application of the approach is the most crucial and significant part of the implementation of the balance score card approach (Kaplan 2012).

Further, there must be steps that must be undertaken towards the solving of the confusions and difficulties arising within the business organization. The effective strategy preparation must also undertake the preparation of the Strategy Map that will make the process of implementation transparent and clear. There will be clarity in the communication procedure that will be undertaken by the business organizations.

Challenges to be faced during the flow of the approach made towards the customers

There are major challenges that the company and its management faces with the implementation of the balance score card approach. The challenges include the engagement of the workers in an effective manner. The mental and physical strength of the workforce must be strong enough to maintain an effective structure. The desired targets and commitments made by the management can only be performed by effectiveness in the flow of the approach towards the customers. The individual engagement is a must for the achievements because the non engagement can make the entire approach to turn in vain. The attainment of the policies is also important as the existence of mere documentation is not enough, the same needs to be implemented and efficiently utilized. There must be motivation provided towards the participation done by the employees to make the implementation program stronger and achievable in near future (Fiege, 2012).

Lack in the methods of keeping an effective track the records

There can be circumstances occurring that would have an effect on the records and documentation of the business organization. The losses can be connected with the records of the actual and budgeted data of the organization. Thus, there can be loss in the tracking of the record mechanisms that would evolve on the potential risks and threats of the organization. The members of the team will be given reminders within small intervals so that there will be effectiveness of the Balance Score Card implemented.

Conclusion

Thus, the overall approach will help in the effectiveness in the policies and strategies of the organization on the basis of the aspects that are financial, learning growth and innovation and others ass explained above. It is the most efficient approach despite of the variety of potential and prospective risks that are incurred within the program of implementation of the Balance Score card. Thus, the company FCH must take measures and steps towards the implementation of the approach and communicating the same towards the overall development of the business organization. Therefore, the above analysis and the evaluation will conclude that the company must implement the Balance score card approach to have the effective stability towards the stability in future. The ROI, EBITDA and the overall growth will have a short term advantage but the focus on every element like the internal and external sources will create a long term advantage and stability.

References

Bhasin, S., 2012. Performance of Lean in large organisations. Journal of Manufacturing Systems, 31(3), pp.349-357.

Fiege, R., 2012. Social Media Balance Scorecard. Erfolgreiche Social Media Strategien.

Flage, R. (2014). A delay time model with imperfect and failure-inducing inspections. Reliability Engineering & System Safety, 124, 1-12.

Gavurová, B., 2012. Source identification of potential malfunction of balanced scorecard system and its influence on system function. E+ M Ekonomie a management, (3), p.76.

Johnson, P. F. (2014). Purchasing and supply management. McGraw-Hill Higher Education.

Kaplan, R.S., 2012. The balanced scorecard: comments on balanced scorecard commentaries. Journal of Accounting & Organizational Change, 8(4), pp.539-545.

Saunders, A., & Cornett, M. M. (2014). Financial institutions management. McGraw-Hill Education,.

Bibliography (No citations required)

Abdullah, I., Umair, T., Rashid, Y. & Naeem, B., 2013. Developments on balanced scorecard: a historical review. World Applied Sciences Journal, 21(1), pp.134-141.

Awadh, A.M. & Alyahya, M.S., 2013. Impact of organizational culture on employee performance. International Review of Management and Business Research, 2(1), p.168.

Boscia, M.W. & McAfee, R.B., 2014. Using the balance scorecard approach: A group exercise. Developments in Business Simulation and Experiential Learning, 35.

Cian, F., Villiers, E., Archer, J., Pitorri, F., & Freeman, K. (2014). Use of Six Sigma Worksheets for assessment of internal and external failure costs associated with candidate quality control rules for an ADVIA 120 hematology analyzer. Veterinary Clinical Pathology, 43(2), 164-171.

Danaei, A. & Hosseini, A., 2013. Performance measurement using balanced scorecard: A case study of pipe industry. Management Science Letters, 3(5), pp.1433-1438.

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1.

b. The cost gaps among the target price and the market price must be eliminated and the process includes the following:

• The management must have a continuous review over the products and services of the business organization.
• The products and services of the business organization that will form a part of the extra cost of the organization must be eliminated
• The management must have a continuous review over the chain of suppliers of the business organization.
• The idle time and the wastages that form the part of the company
• The efforts in team must be huge to reduce the costs of the overall process

The transfer based approaches do not take into consideration the premiums but takes into account the production cost. Thus, the value based approach will be considered effective towards undertaking the consideration of the market premiums and other realities.

2. a) There are two major categories in which the costs of quality of services of the poor nature are divided and the same are discussed as under:

Internal failure costs:

Cost of Rework: The cost of reworking the poor parts or accessories of products and services

Costs of Failure of process: There must be failure in the processes that will increase the cost of the overall business structure

Cost of scrap: There may be degraded products and scraps that must be removed and the cost of removal is the part of such cost of scrap

Costs of Process downtime: There can be shut down of processes that could increase the cost of processes

External failure costs:

Costs of Warranty Claims: There can be claims made by customers for recovering their products within the provided period of warranty and thus the same forms the part of such costs.

Costs of Customer complaints: There may be complaints made by customers and the same must be removed with proper response and feedbacks.

Costs of Product return: The return of products must be recorded and the extra costs required towards repairing the same and providing back to the customers will be included in such costs.

The drug industry might have a great amount of external failures in comparison to the internal failures and the same must be controlled efficiently. The drugs might contain a lot of deficiencies that get presented after being used by the customers and thus internally it is not easy to get hold of such failures. Thus, the company must take steps to check all of them by experimental programs to save the internal and external failures.

b. CP can face the following problems that are discussed below:

• There can be competitive forces that may create issues within the organization
• The tools and equipments used by the organization must be strong and productive in nature
• The organization must implement proper and effective technologies within the health industry as the same can lead to the reduction of risks and threats that can have a chance of evolving in the near future
• The customer’s requirements are growing with each passing day and thus the same must be met in an effective and efficient manner.