Case: 1 Dalia Summary of the case Leadership is a necessary quality in the business world; it is a key to success. A leader needs to inhabit ethical characteristics, and must try to do the right thing. We have seen many schemes and scandals throughout the years in the business world, many of which were unethical. Companies have stolen information, enhanced their earnings through illegal methods, and lied on their tax returns. In 2002, US Congress passed the Sarbanes-Oxley Act. This act was set in place in order to protect investors from false information presented by corporations. This act should have prevented accounting fraud. Kasthuri Henri is not fond of the Sarbane-Oxley Act. As detailed in the case Leading with Your Soul, the Sarbane-Oxley Act had many flaws. Following the act, the US faced a mortgage crisis; leading executives had questionable motives and weakened the financial system. Kasthuri Henri is one of many leaders who believes in ethical methods in doing business. It is understandable that it is often difficult to be ethical in the business world, where a company’s numbers are valued the most. It is important to lead, but more important to lead the right way. Ethics has become a popular topic in business, as managers and workers around the world are now being taught how to do business and make decisions the principled way. Henri discusses in the case the person’s “soul” – what they do to be happy and why they do it. What a person does to be happy reflects on his or her own character. The soul is driven to pursue happiness, however this drive can be altered to become ethical. The soul is emphasized throughout the case, as ethics comes from within. You have to change what’s on the inside, a person’s soul, and encourage ethics through day-to-day life. The wrong decision is often the easiest, but there are no short cuts when it comes to ethical leadership. In the case Leading with Your Soul, Henri presents the Ethical Leadership Model. When followed correctly, the model leads to success and sustainability. There are six ethical leadership traits: (1) Being purpose driven: the vision of the leader can allow him to work for more than just a company’s profits. Vision can change and make people good. (2) Courage of conviction: People tend to follow the courageous leader. Courage is more than just talk, you also have to act. You have to have GUTS; stand up for what is right and do not let anybody get in your way. (3) Whole person approach: people are not machines. An ethical leader recognizes that a whole person is the body, the heart, the mind, and the spirit. One cannot function without the other, and this is how a person survives. (4) Empowerment: there are primary leaders, secondary leaders, and non-leaders. To become a primary leader, one must be an effective individual and embody empowerment. (5) Succession planning: one important trait of a leader is planning for future success. The leader takes it upon himself to train, nurture, and grow talent. (6) Emotional intelligence: In order to create leaders, individuals must have the chance to observe the model of leadership. They should have the option to study leaders in order to use the individual as guide for themselves. Emotional intelligence is set up of self-awareness, self-management, social awareness, and social skills. The Ethical Leadership Model is more than just having traits of a leader. It must be applied and re-applied. There are four steps to applying the model: 1. Knowledge development and relationship development: Seeking knowledge is a wonderful trait to have. A leader must seek knowledge but also develop his relationships. This can be done through honest and open communication, commanding respect, and making tough decisions courageously. 1. Process development: process can always be improved by leveraging technology. This step can empower employees and improvement will be seen along the way. 1. Team development and succession plan realization: Teaming up and working together so you grow together is an important characteristic of leaders. When an opportunity opens up, the employee has earned the spot if chosen for promotion. 1. Process delivery: The only way to achieve your goals is by doing the right thing and supporting each other. Honoring one another is important in applying the Ethical Leadership Model. Relationship of the case to my work experience I have always been a natural born leader. Doing what is right, especially in a competitive environment at work, is not always the easiest thing to do. My managers have always pushed me to take on more initiative and help those around me. However, it is hard to do the right thing when pushed to achieve company goals under a strict deadline. I can apply the Ethical Leadership Model in this case. In my experience, I’ve witnessed my colleagues being teased for “caring too much” about the task at hand. By applying the model and leading by example, I can teach those around me about the success behind being an ethical leader. I’ve witnessed first-hand the lengths an employee will go to make the company profit. It is difficult to be ethical when the company’s numbers matter most. However, there is a way to achieve goals while being ethical. That’s what this case was all about. I have to train myself to do what’s right and lead by best example. Everyone wants to succeed, we do not have to sabotage each other to do it. Working in a team and following the Ethical Leadership Model will guide individuals to success. Relationship of the case to material covered in class The Sarbanes-Oxley act was covered in chapter 1 of the text book. The act focuses on three points in relation to the accounting environment and financial reporting: (1) opportunity, (2) incentives, and (3) character. However, as covered in the case, the Sarbanes-Oxley Act is not all what it was cracked up to be. The course also covers how ethics plays a big role in managerial decision making. All managers are responsible to create an ethical work environment. Sustainability is key here. Decisions should be made for the benefit of today, without harming the future of the business. Sustainable accounting measures the impact of business decision in relation to people and the planet. It’s more than just numbers; sustainable accounting takes into account social issues and the environment. A business cannot survive in the future without people and the planet. Sustainable accounting focuses on that while also maintaining company profits. Summary The case, Leading with Your Soul by Kathuri Henri, and the textbook covered in this class, Managerial Accounting, both discuss the importance of ethics and sustainability in the business and accounting environment. The Comprehensive Ethical Leadership Model is a guide that individuals should use to make ethical decisions. Management values ethical leadership and it is a successful organization trait. Ethical leadership creates an environment where management cares about its employees and prioritizes growth through its people. The model is not only limited to accounting, it can be used in day-to-day lie as well as other focuses of business, such as human resources, finance, and more. Case: 2 Cesar Summary This article explains why Traditional programs tend to be short term in nature and ineffective in developing long term sustained change. There are five traditional cost reduction programs which are used and include:The technology approach- Focuses on replacing direct labor with technology to increase the efficiency and reduce the number of unions. This approach is used when in case of poor performance and has not worked in many companies especially those in which labor cost is a small percentage of the total production cost. Lean and Mean uses the policy of reducing the number of employees. The approach is through laying off employees but eventually it does not reduce the job that needs to be done of creating and selling of products. Offshore retreat depends on cost reduction by moving to a different location for example Asia. The policy works on how employees are treated utilizing exchange rate and the currency fluctuations. Eventually the employees are laid off when the firm moves the job offshore. In the article Mergers is also a traditional program that is mentioned. Mergers creates an economy of scale as the idea is to eliminate in excess of plants, employees, products, and overhead. The problem comes in corporate culture, and the types of products and technologies.Mergers can cause the employees that remain to suffer motivation and morale loss. Diversification is whereby a firm looks for a less expensive operating environment. If a firm expands beyond its core competency, however it is likely to experience difficulties in developing and implementing new products, technologies or distribution systems with the results that cost are higher rather than lower, than expected. Strategic cost reduction aims on focusing on a long term design of involving competitive strategies, technological strategies, human resource strategy and organizational design consideration to provide a focused and dynamic basis for sustaining competitive advantage. The management focuses on human and sound approach to cost cutting , that employees must be educated in being cost conscious in the firm and that they are the ultimate source of competitive advantage.The organization should aim to give employees long term employment to create a trust and support and increase motivation. Organizations must aim to develop these norms before engaging in cost reduction. The viable approach up to date that was successful was the strategic cost reduction approach. Relationship of the case to my work place In the textile industry, the strategic cost reduction measure is widely used as the long term approach. In my position in the accounts office we focus on cost cutting by implementing mentorship programs and training programs. The education is necessary for the long term basis for sustaining competitive advantage and to ensure productivity and efficiency from all employees. At the end of each quarter we are tasked to come up with ways of reducing costs and maximizing on profits. One of the approach that we use is the cost behavior method. The cost behavior approach would be assist in preparing the company’s budgets and prediction of cash flows. Once the data for cost behavior is analysed we are able to make better budgets and to focus on the garments and products that bring in most profits and eliminating the products that do not bring in profits. Budgetary planning is also a determining factor in the organisation. The Budgets would assist not only as a course of action but to guide our future. Relationship of the case to my course Strategic cost reduction is widely used today and in the course we focused on cost accounting. Cost accounting is widely used in the company to achieve permanent reduction in the unit cost of goods manufactured without impairing its usage or the quality of our garments. At the industry, we use Job Order Costing which would assign costs separately and calculate the profit margin on each order. The Job Order Costing would assist in assessing our employee’s performances. Job Order Costing assists in determining each employee's data in term of efficiency, productivity and cost control. We use this measure to identify some of the employees who fail to meet the performance expectations. Activity based costing is one of the strategic cost reduction methods that we use. Activity based costing is achieved through transferring of overhead costs to individual products accurately. In the garment industry use of ABC is important as it assists to locate inefficient products or activities that maximizes on the expenses. Summary Cost reduction programs are very helpful because companies need to maximize on profits. Companies need to increase their profits and be more competitive to succeed. The knowledge of implementing effective and efficient cost reduction strategies can be they key factor in a business survival. Cost reduction helps in eliminating waste, improved productivity and increased profits. Case : 3 Aniqa Case Summary Target costing is a costing system under which a company plans in advance for the price points, product costs and margins that it wants to achieve for a new product. Minimizing costs is a common financial goal of any business as it gives the company the financial flexibility to focus on entering the market at low price points to attract a large customer base and achieve high profit margins. For companies to hold the market leadership today and forestall imitation, they have to design the cost out of their products when they set initial levels of quality and functionality and calibrate product performance to an identified price niche. In order to be successful, many companies like Olympus Optical Company and Komatsu had shifted to target costing for survival. When “compact” cameras with new attractive features started replacing the once monopoly leader of single-lens reflex (SLR) cameras, Olympus started losing money and managers concluded that planning and development of product families required improvement. The most important initiative taken by the managers was reconciling production costs to a volatile market to meet the challenging price and profit targets within 18 months of their being set, before the competitive environment could shift again. The managers produced: (i) a corporate plan that identified the future mix of businesses by major product line (ii) the desired levels of profitability and the contribution of each product to the cultivation of the brand (iii) performed a technology review to learn how current and future technologies would affect the camera business, e.g. changing exchange rates and segmentation of income groups that affect the product demands. (iv) conducted the marketing research - questionnaires, group interviews at fashion centers and photographers as well as competitive analysis examining areas such as competitors’ capabilities- the price points and patents. With these information collected the company set the price points and subtracted the appropriate margins for dealers and U.S. subsidiary and import costs to arrive at a preliminary target cost for each new product. However, if target costs could not be met or price points could not be changed, the team returned the product to research and development for redesign. Using a life-cycle analysis the managers assessed the value of a technology’s variety of models over the life cycle of a whole product family. As for the existing products, Olympus monitored and managed fixed costs, purchased-parts costs, routine production costs, the costs of defective production, capacity utilization targets and overhead expenses. On the whole, however, the company used cost savings to improve its products over time. On the other hand, unlike Olympus, Komatsu does not focus on some mechanistic algorithm but on the complex relationship between cost and price and the effects of both on value. It provides engineering support to suppliers that cannot meet targets. Komatsu’s products contain more components compared to Olympus, however, it manufactures roughly 30% of it; and subcontracted and purchased the remaining from outside suppliers. Komatsu’s target costing program provides the parameters that guides its negotiations with suppliers and subassembly makers to ensure a profitable product launch. Their integrated goal was to launch a product at a price the end user will find attractive and not just a subassembly that satisfies the product engineers. Functional tables, containing information about the physical characteristics of each component help designers determine the company’s best-performing components. Cost tables, containing information about the costs of components help designers to identify the low-cost components. Using these two, Komatsu forced its suppliers to push the frontiers of their own technology to achieve more efficient designs. Target costing requires a company to make a series of decisions that include defining a product that customers want, ascertaining the economics required for profitability, allocating targets to components, and identifying the gap between target costs and initial projections of manufacturing costs. Companies must do their best to understand how their customers’ preferences and their competitors’ products will evolve with time. The financial analysis associated with product development has to be done early in the design process to tell the managers what needs to be done to make it successful. However, this costing system is used in the service industry as well, focussing the service delivery system. Relationship of Case to Work Experience Target-costing was effectively implemented in the mobile phone manufacturing company where I had worked. The company had initially captured high market share, producing monophonic phones at a reasonable price. However, introduction of polyphonic phones at a very reasonable price caused the company lose its market share to its competitors. As a result, what the company managers did was first figure out the needs and wants of customers through surveys and come up with polyphonic mobile phones with additional wi-fi services and other applications. This is similar to Isuzu Motors’ target-costing system, who, like others, aim to keep prices constant while adding as much functionality as possible to each new generation of vehicles. The mobile phone manufacturing company spread its target cost among the major specified function improvements to persist in the evolving market. It has used the cost reduction tool called value engineering to conduct a functional analysis which determined what value a mobile phone performs, what it costs and how much customer value it creates. Value is often expressed as having a high degree of importance to the customer, and is determined by the contribution of a function to a product’s feature. The company used a ratio called value index by which they could measure the degree of importance to a percentage of cost. Any function or component that turned out to have a value index of less than or equal to 1 is a typical subject of value engineering. Further discussions and critical evaluations about the components with a low value index led to their elimination and introduced new ones. Relation of Case to Material Covered In the class we have learnt that target costing is a proactive approach to cost management that managers can use to determine what costs should be for company to earn acceptable profit across a product’s life cycle. Managerial Accounting can be used to apply in everyday life, and for a thirst for knowledge and intellectual stimulation there are many great applications. Target costing is a key survival tool for most companies that compete by continually issuing a stream of new or upgraded products in the market. If the target cost reflects all of the costs that will be incurred across the value chain, only then it can be said that it has been successfully implemented. This includes the set of activities required to design, develop, produce, market, delivering the product to customers as well as after-market customer service. The relationship between the case and the course reflects the importance of target-costing. Summary It drives a product development strategy that focuses the design team on the ultimate customer and on the real opportunity in the market. It is an essential tool for all managers working in manufacturing organizations, although it is used some service industries as well. The rigorous cost-management techniques help prevent senior managers from launching low-margin products that do not generate appropriate returns to the company, but its greater value lies in its ability to bring the challenge of the marketplace back through the chain of production to product designers. It is a discipline that harmonizes the labor of disparate participants in the development effort, from designers and manufacturing engineers to market researchers and suppliers. Case: 4 Nora Summary of the Young Reader Case Continuous assessment of cost management systems in today’s business environment has become imperative for any organization to accurately determine its production costs. In every organization, the production costs incurred during the manufacture of its products and services directly relates to the revenue earned. Thus, for companies to avoid entering into murky waters such as unforeseen debts, the author highlights the need of scrutinizing the efficiency of cost management systems as a cost reduction process. Cooper in his periodical explicates that effective managers should always ponder “if they really know what their products Cost?” The given aspect implies that it is only through the acknowledgement of actual product costs, that managers are able to identify the need to scrutinize their systems. The author testifies that although answering the question might require an expensive and detailed examination process, there are various steps he proposes that may aid a manager throughout the obsolete symptoms identification phrase. The process explores several variables such as the result of bids, competition rate, profit margins and intuitive products profit margins. By utilizing the proposed guidelines, copper purports that a management can identify a poorly-designed or obsolete cost structure in its early stages and overhaul it. Symptoms of an Obsolete Cost System There are five common symptoms of an obsolete system. An unexplainable profit margin is the first symptom. Essentially an effective cost system should effortlessly empower the manager with the ability to precisely explicate why some products generate more revenue than the rest. However, when the projection is queer, then the system should be declared obsolete. The Second aspect is inaccurate outcome projections on prospective bids. Obsolete costs systems are defined by the ability to vaguely predict potential and impossible bids. For instance, if the firm perceives to be bidding low then it secures the bid, a fault definitely exists in the system. Thirdly, an obsolete system manifests when high competition's volume products are unrealistically priced at low levels- unlike low volume products, high volume products are less expensive to produce. However, the fault of a cost system manifests when a firm without any competitive advantage prices high volume products at low levels and then projects a healthy revenue realization. Fourthly, the cost system is obsolete when the outside vendor’s bids are lower than what is projected by the management. Besides, it happens when vendors pricing is higher than an in house production. Finally, Price increase neglect by customers acts as a symptom of an obsolete system. Price significantly affects the demand for a product, and if a cost system indicates little or no reaction to price increase, then it is an obsolete symptom. System Design Flaws Firstly, sole reliance on direct labour hours or dollars as a platform to allocate overhead from products to cost centres. Secondly, utilization of volume-related allocation base to allocate overhead from cost pools to products. Third case manifests if cost pools are high as a result of machines, unlike overhead structure. The high cost is caused by new development in technology, which results into a mix of automated and conventional machinery cost. Lastly, when marketing and delivering costs differ in accounting availed in distribution channels, while the cost accounting structure neglects marketing costs. Relationship of the Case to your Work Experience A few years back, I worked at a prominent beauty salon that had more than five branches in the metropolitan town. At the time the saloon was quite successful with revenue realized growing steadily. The cost accounting division was effective, as it equipped the management team with sufficient records to make several decisions. While reviewing the records provoked by unsatisfactory profit margins reported in the third quarter of the year, the salon identified the presence of costs that did not generate any profits. After a thorough review by the management team, the missing costs were traced down to a complimentary welcome juice serving and gift hamper offered to customers. When the costs were eliminated, the beauty salon saved approximately $1,000. Relationship of the Case to Material Covered in the Class Drawing from the class reading, it is a clear that management teams rely on data and information from the accounting department to make their decisions. Under its controlling role, the management team relies on information from the cost accounting department to determine its planned performance, whereas reliable accounting system provides the management staff with adequate and accurate data that is necessary to make proper decisions. Summary It is crucial for managers to continuously assess and identify the flaws in their cost accounting systems as the platforms significantly influence their decisions. Besides that, in today’s competitive world, only the best remain ahead of the rest in terms of efficiency in operations. Continuous assessment of the cost accounting systems is one of the approaches that can be employed to remain ahead of the curve, from a production perspective. It is through the identification of flaws that managers can take necessary measures to fix the errors, an aspect that eventually promotes healthy decisions and overall success of the organization. The process of conducting an entire assessment is demanding and expensive, as such it is only through the identification of obsolete symptoms that managers can make the necessary steps to enhance accountability. In conclusion, drawing from the recommendations proposed by copper within the article, managers can easily identify the symptoms of an obsolete system as well as various design flaws, and take steps and measures to regulate it. Case : 5 Omar Summary of the Young Reader Case In order to control the downsizing and other issues related to its operations corporate controllers have undertaken basic activities to guarantee that financial and operational controls stay in place. There are some issues which controllers are facing such as downsizing, new methods and metrics related to risk management and some issues related to supply chain strategies. They also agree on adoption of International Financial Reporting Standards (IFRS) after the great recession. Following are the issue explained in this case. Downsizing Downsizing has an impact on profitable competencies of the firm, general operational and control condition. As it is said by Marsha Hunt corporate controller and vice president of Cummins Inc., a global company that “During downsizing or restructuring one of the main issues regarding the control is to make sure finance is aware of the decisions and a stop-gap strategy exists in advance to make sure the control is fully implemented.” Hunt also explained that while making decisions regarding downsizing there should be clear awareness and should know who will be impacted as a whole company. This will help the controllers to manage actions needed in future. Meanwhile at the same time there should be a continuous emphasis on financial control especially in complex and international business operations. John Davidson, Tyco’s senior vice president, controller, and chief accounting officer explained that “Company like Tyco, used a controlled approach handling financial control during the time of downsizing. They had a structured approach to account reconciliation and balance sheet just to be on top of the activities and not going away significantly. Davidson further explained that our company is keeping an eye on the vacant positions and make sure they are covered more effectively. The Role of SOX Reporting As we have learned about Sarbanes-Oxley Act (SOX) of 2002 was primarily aimed at renewing investor confidence in the external financial reporting system. However, it has many implications for managers such as: 1. Reducing opportunities for error and fraud. 2. Counteractingincentives for fraud. 3. Encouraging good character. Internal control is more critical during downsizing especially when new reporting risks are expected. As Nicholas S. Cyprus, VP, controller, and Chief accounting officer at General Motors Corporation, clarifies, certain threats develop when organizations lay off a considerable number of the management team/group. He notes, "When you experience downsizing, simple things like blocking-and-handling controls, reconciliation, get put to side because people have not enough time to do them, and, clearly, contingent upon how huge the accounting is, it doesn't get reconciled.” To address these risks, General Motors turned to its very structured internal control evaluation and reporting designs. "At GM," says Cyprus, "we took out about third of our official headcount and a significant number of our salaried employees. We tied that into our SOX [Sarbanes-Oxley Act] group structure. So one of the things I asked the other controllers to do was map out all the jobs that were going away. They didn’t necessarily need to be finance jobs because a lot of operations jobs have accounting implications. We actually tied it back to our SOX process and then used that process to see how smart business decisions to actually source your material somewhere else, but if you don’t take a look at how you measure your inventory turnover you could be actually driving a negative trend or masking the trends you want to measure.” Key Metrics Downsizing efforts in a terrible economy are the key metrics that are being utilized to monitor financial dangers more closely. Tyco and other companies faced the reduction in global consumer which transferred the focus more on working capital and has new meaning to it. As John Davidson explains, “Our focus is on working capital from an operating standpoint, also in terms of just understanding the financial performance of our businesses. This year and over the past year, we actually formed what we called a working capital management team.” Tyco increased their inventory. Davidson says, “balance sheets have been tricky, so making sure that the inventories that we do have remain filled is a key thing.” In addition, Cummins shifted their focus on balance of supplier. They were relying on single source of supply but now they have more insights towards global opportunities, which then shifted their focus toward measuring inventory turnover related to longer shipping lead times. Hunt said “If you don’t take a look at how you measure your inventory turnover you could be actually driving a negative trend or masking the trends you want to measure.” These key metrics helps organizations during the period of downsizing and have more control over financial and operational control. Identifying key metrics and taking appropriate actions is the best exercise one could do. IFRS or U.S. GAAP? Divergent Views In 2010, the Securities & Exchange Commission (SEC) has yet to set a date for the U.S. adoption of IFRS. But with more than 150 countries around the world adopting them and the ongoing momentum by the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) to produce one set of highquality global standards, U.S. controllers are wondering whether they should turn up the heat on IFRS conversion in their companies in 2010. With the general understanding that changing over to IFRS doesn't occur overnight, some global organizations are giving careful consideration to how the standards are being rolled out in publicly listed subsidiaries around the world, and others are choosing to wait until the SEC is satisfied that IFRS should be the standard for reporting in American firms. Cummins Inc. owns 51% of a subsidiary in India that’s a reporting registrant in that country. Traditionally, the company has been structured so that the corporate control function hasn’t been engaged in local statutory reporting; rather, their subsidiaries report to them on a U.S. Generally Accepted Accounting Principles (GAAP) basis. But now that India is adopting IFRS, Cummins’s control team will be monitoring what happens there very closely, which will help them make decisions around how to proceed elsewhere. Marsha Hunt says, “Largely it will be accelerating the positions we need to make around certain policies. We don’t want to set up our Indian subsidiary in a situation where the parent company comes in, assuming the U.S. were to adopt IFRS at some point in the future, and then forces a restatement of the financial statements there. So we’re trying to think through those judgment issues now.” To prepare for IFRS conversion now, Cummins has been encouraging training and has identified core team members they want to expose to IFRS, focusing first on the critical conversion areas that are expected to have the largest impact on the company. Companies like Tyco with an extensive global network see the benefit of a unified standard and an early understanding of how IFRS is being adopted in their companies around the world. As John Davidson explains, “We have about 1,200 legal entities across the globe, of which roughly 900 are outside the U.S. For us, one standard, one reporting scheme would be really beneficial. Think about the benefits that would improve the company to be able to move people from one country or one business to the next and think they’ll be talking about the same set of standards. I think it would be a great benefit. We are not there yet, and it’s certainly going to be a lot of work, but we are working with the [business] units that are getting ready to adopt.” But as the economic downturn in the U.S. has limited discretionary spending across the board, it has also potentially impeded the progress toward understanding the likely impacts of IFRS in many companies. From a practical perspective, controllers are concerned that the budgetary aspects of adoption aren’t being adequately considered at this time, and, without a hard adoption date, the argument for IFRS conversion resources remains weak. Some organizations are going for conversion as they feel more control over the financial and operational aspect whereas, Others are taking a wait-and-see approach, looking to the FASB and the IASB to move further along the path to convergence of IFRS and U.S. GAAP. Shifting Focus From the three specialists giving their perspectives on what's keeping them up at night, we clealrly observe that controllers now need to do things any other way so as to guarantee that their control settings stay in place. Controllers shifted their focus on monitoring of control process, account receivable and examining the financial control of organization which is going to be extraordinary to American controllers. In the meantime, some U.S. controllers are turning their consideration toward embracing global accounting standards in 2010 in expectation of possible acceptance from the SEC. Others, similar to General Motors, keep on waiting with thoughtfulness that the FASB and IASB are getting closer to finalizing their conversion projects. Relationship of the Case to your work experience The work experience I have gained during 2 years is in retail. It is a well-known globally operating company. I have worked with almost every department as my job is to make sure the flow of merchandise to floor is always up to date. There was also the task of inventory control. Manager and other officials were making decisions about the inventory and other business decisions. Focus on financial control is always been the priority of my organization. There is a structured approach to implement such controls. They make sure during the downsizing period that everybody is aware of decisions so that everybody could remain intact. My work place is already having a control over the suppliers and risk and financial control is well controlled in the regard of suppliers. It was observed that inventory turnover is regularly checked and reports are generated because Inventory turnover is high and structured approaches are implemented to keep up with the control and avoid upcoming rsks. On checking from my department it was told that we have adopted and working on International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) Relationship of the Case to material covered in class. Managerial accounting plays an important role in making financial and operational decisions and be very careful about financial performance of the organization. In class we have learned about managing costs. Downsizing are can relate to the overhead costs and could be the point of lowering the cost of labor and cut the overhead cost, but at the same time becoming knowledgeable about the vacant position and its consequences should be kept in mind. We have learned about the SOX and making align with this structure could lead you towards more efficient financial control. It will help us to control our overhead and labor cost which could lead in some profitability change. Inventory turnover is also the key point to enhance the financial performance. We have learned how to calculate company’s growth and profitability the relationship of the case and with our material covered in the class is financial ethics, SOX, Performance control, balance sheet and overhead. Summary This case tells you about the structured check and balance of the financial and operational control of the organization. When talking about structured approaches it means balance sheet reviews, supplier health, and financial global standards. These issues are the main focus point for the controllers to think about in the following year. Downsizing affects all the operational and the financial functions of the Company. Implementing structured approaches could lead an organization towards stability and more profitable. These issues derive the controller to think about the future and make certain arrangements. Case : 6 Daniel Da Case Summary In the early stages of product development, target costing techniques are important for controlling costs. Target costing systems should always have three very important approaches in mind; Major costs should always be identified in the design phase, decisions on price, quality, and function are set early, and finally the team working on the product must be multifunctional to achieve maximum efficient target cost. The following six components requires sufficient managing to successfully implement target costing principles. Price-led costing is the addition of profit margin on the projected cost of the product to set the initial market price. Selling prices and profit margins are a necessary evil to remain in business, therefore management of costs is required to increase profit. Three customer-oriented variables are essential in knowing to gain a short-term competitive advantage which are the; Price, quality, and functionality of the product in focus. This is because consumers have the say on the accepted quality and functionality standards, while keeping prices at a reasonable level. Cost-reduction efforts should be implemented from the very start of the design process, as production costs derive from the decisions that were implemented from the design phase. This is achieved through a highly trained multi-functional team which contains professionals from varying departments of the business, including the suppliers. They also focus their efforts on improving the products life-cycle cost reduction by reducing manufacturing and ownership costs. Finally, by including the suppliers early in the value chain (design phase), as well as marketing and customer service, quality improves and costs are reduced based on their valuable input. All highly successful companies have eventually, in their lifetime, hit a point of drastic lose due to various reasons including a market crash and/or poor management. Mercedes couldn’t escape this in the early 90’s, a time when, for the first time, it had actually lost profit. Since, there have been methods established to reduce cost and increase efficiency. During this period of re-evaluation, Mercedes had decided to develop several new models of vehicles, one being the M-class sports utility vehicle, as well as invest in the construction of a new production facility located in a foreign country. In this case, the United States of America, the biggest market in the world. The M-class was their most ambitious projects yet, it would take years of planning, implementing, and controlling. During the concept phase (1992-1993) of the M-class, risk and opportunities were evaluated by estimating the total manufacturing costs and analyzing projected cash flow over an extended period. The use of net present value (NPV) was crucial in estimating production volume. The development of various indexes assisted with determining important performance, design, and cost characteristics defined by potential customers. The data collected from this was then recorded in indexes stating each functional group importance and relative percentage to each other. From there a target cost index was calculated by dividing the importance index by the target cost percentage for each functional group. Once their indexes were thoroughly calculated and complete, value engineering techniques were applied to align the customers perceived value to target cost. If an index was less than one, it would possibly indicate that the cost of that functions was higher than the perceived value. In the project realization phase (1993 – 1996) the goal-oriented approach in the use of target costing insisted in keeping development alive even after the concept phase. This allowed them to make changes to the concept vehicle based on crash test results, input from the multifunctional teams, and shifting customer demands in corporate level decision making. Flexibility is valuable, regardless of the market, in achieving customer satisfaction and target cost. Finally, the production phase (1997 – present) was monitored annually, through NPV, in determining whether actual production costs were closely related to target costs. In a period of four years, an entirely new vehicle model was conceived that was successfully within their target budget, proving to be the success story they were looking to achieve. Relationship to Work Experience The experience I have gained while working in the customer service department for CBS is relative to this case. Although slightly dissimilar, since CBS is a service provider and not a manufacturer, target costing was an implemented method to insure the development of the product to be customer oriented while keeping costs managed. Specifically, during my time in CBS a multifunctional development team, including marketing and customer service, was assembled to assist in developing a new fitness training streaming service that targeted individuals who preferred to exercise in the comfort of their homes. From the very beginning, customer service was included in the value chain of its development which included gathering the opinions of early testers to gain insight in their demand. Prior to opening the program to testers, the price, quality, and functionality was created in a manner which attempted to predict what customers would like and how much they would pay for the service. The method used to determine the initial price was based on how much the trainers expected to be reimbursed for providing their videos for the program, a mark-up was then decided based on their set target cost and profit margin. Also known as price-led costing. Cost-reductions efforts were immediately imposed from the start; as soon as the service looked good enough to be tested by potential customers it was released so that their input would be heard and implemented sooner rather later. This would reduce wasting time developing a service people may not end up enjoying. The more changes that are made and time wasted, the more profit is lost in a service related project. One other concern would be to prevent customers from ending their subscription, there needed a way to keep them interested in the service. Therefore, by focusing on lifecycle cost reduction, efforts were made to negotiate cheaper royalty and reimbursement amounts for trainer videos to reduce the overall monthly subscription charges for the customer while providing added content. Throughout the development cycle, value engineering techniques were applied that made several changes to efficiently spread costs across the service to achieve the proper target cost and customer satisfaction. Relationship to Course Management accounting touches on several aspects of our everyday lives, ranging from personal to professional. Regardless of what an individual plans on doing, they are subject to being a manager even if that means of their own finances and time, or their companies. This means they will always look for way to make themselves more efficient by doing more in a shorter period, or by cutting costs on specific things that they don’t need. This case hits upon an important lesson that was covered in the management accounting course, to use target costing techniques to control costs early on and attain a higher profit margin. As mentioned in the course text, managers from different departments must work together in finding ways to meet the target cost without jeopardizing customer value. This involves the use of value engineering which is also briefly mentioned and is defined to be a process that involves analyzing which functions as value to the customer and finding ways to deliver them while meeting target cost. Successfully implementation of target costing principles mentioned in this case again reflect off the lessons in this course that describe the value chain; the step-bystep process of activities required to design, develop, produce, market, and deliver the product to customers, as well as providing after-market customer service as defined in the managerial accounting text. Developing a proper value chain to meet customer demands and target cost will help any company, or organization, in gaining a higher profit margin. This relationship between case and course only exemplifies its meaning along with the remaining principles mentioned including price-led costing, customer orientation, cost-reduction efforts, multifunctional teams, life-cycle cost reduction, and value chain. Each principle derived from managerial accounting techniques. Summary Proper management of costs is an essential skill to find in any manager. One that implements target costing techniques and methods that are demonstrated in this case, in their work experience, and in the classrooms, will find out that they hold a very valuable tool. Target costing should be a priority in any setting and, as we have seen, can be applied in such. Whether used in the workplace or for personal matters, the use of target costing defines the difference between an individual (organization) which desires to attain their goal (highest profit margin) with above-average revenue from one that is satisfied with where they stand even if they just make it. In mastering these techniques any individual will have the potential to succeed as a manager. Case : 7 Ahmed Alhadaith # SUMMARY OF YOUNG READER CASE Traditional cost reduction programs. Traditional cost reduction is a program that was used in the 1970s to reduce the cost that was used by the organizations in the production. This program was used majorly due to; 1. Poor production 1. Reduction of price 1. Loss of contracts. This traditional programs can be applied in a short period of time because they could not sustain the long-term change of the organization. As much as this programs serve the company well for a short period of time, in the long run, they might lead to the failure of the company. The following are the five major traditional programs that were used by the organizations. 1. The technology approach 1. Lean and mean 1. Off-shore retreat 1. Mergers 1. Diversification The technology approach This approach is usually used when the performance of the company seems to be very poor. It replaces the direct labor with technology. However, this method is not the best and it has failed in most companies where direct labor is not commonly used. Lean and mean This approach is used by most companies and it has not been successful in the long run. It is used by reducing the employees of the company but maintain the same amount of job. Offshore retreat This program is used by companies by seeking places where they can reduce the cost of production like for instance where they can find cheap labor. This method, however, can reduce the motivation of the employees in the home country as most of them will be laid off because the company will be moving offshore. Mergers This program involves company's joining together to enjoy the economies of scale. This company, however, may fail to come to consensus on a number of factors like; 1. Type of product to produce 1. The technology to employ 1. Corporate culture Diversification Diversification is a traditional program used when companies move around searching for a cheaper working environment. In case the company expands its business more than it can control, the business is likely to face challenges. # RELATIONSHIP OF THE CASE TO WORK EXPERIENCE Throughout my working experience, I have come across the five traditional programs of cutting cost. Most companies I have worked before, apply for the cost reduction program in every department of the organization. The reduction cannot be done by just a single person. It requires people coming together and implementing the program. Senior management has been the people who usually make it easy to reduce the cost as their decision is mostly resected by all the departments. Technology approach currently is the most used program for the organizations because of the changing world. The method substitutes the more expensive method to less expensive and it is very efficient. However, this method requires expertise who are rarely found. Lean and mean is another method applied by companies when they are desperately looking to reduce the cost of the company in the short run. Most companies I have worked for, select workers who are hardworking and keep them as they layoff the less hardworking. The workers who are retained mostly are subjected to more work because they will cover their share and the share of those who were laid off. As much as the work is done, in the long run, the workers lose the moral and this puts the company at risk. The offshore retreat is also another traditional method companies tend to cut cost. I have not directly experienced this kind of program but I have heard others saying that the method is not effective as companies gamble because they are not aware of the repercussions of the new environment they would like to move to. Mergers are not a very common program, the companies who employ this kind method seek mutual benefit. The companies enjoy mutual benefits however they usually fail to agree on very sensitive matters that usually lead to break up of the mergers. Diversification is another method that I experienced in my first working company. The company decided to find another cheaper working environment but there were more costs than benefits. Just like offshore, diversification is gambling with other the business. As much as the environment was cheaper, the company was costed a lot in the shifting the business to the new environment. RELATIONSHIP OF THE CASE TO MATERIAL COVERED IN CLASS To begin with, managerial accounting and cost accounting are deeply related. This is in regard to the managements need for detailed analyses of expenses to understand the performance. The management have to look into ways of reducing the expenses in order to increase their profitability. In cases where the costs rise above the required ones, the management must work with employees to reduce this by ensuring that efficient and effective costing and allocation is dispensed with immediacy. In light of this, this is a discussion of the semblance between the case and the work done in class. In the beginning of the class, the relationship between managerial accounting and business environment was established. Here, the role of the managers and the data that they consider while making their decisions was clearly addressed. It was established that managerial accounting seeks to enhance the performance of an organization by adopting strategies that lower the costs incurred in production and they are accomplished with a consideration of the environment in which the businesses exist. This relationship between managerial accounting and businesses environment is manifested in the case where the business changed its location to enhance performance. This augurs well with situations where overseas business setups lower the cost of production as opposed to local business setups due to factors such as hostility and legal issues. As an example, a business may shift to a place where there are lower taxes and lower labor costs. More to these, the fundamentals of value costing and apportionment were addressed in the course. This was found to be a broad concept since it involves the organization structure of the organization as a whole. The role of managers in influencing apportionment of costs and the impact that their actions have on the entire organization was assessed. Again, the case addressed shows this relationship clearly. In this regard, it shows the traditional managerial decision making and its impact on an organization. One example that suffices is the identification of units that can be merged to reduce the cost of operating the business, hence increase the profitability of an organization. Additionally, the subject of activity based costing was widely addressed in the coursework. This is especially in the field of system designs. Here, it was found that organizations will come up with their custom cost apportionment methods to make their activities better and increase their profitability. In this regard, it was clear that these organizations will get better as far as their costing efforts are suitable for their businesses. As such, the models they use have an impact on the profitability. This same concept is seen in the case study. Organizations resulted to using different methods to lower their costs and increase their profitability. In this pursuit, come of the organizations leveraged technology to replace human employees to lower their labor costs. With these details, it is clear that the case depicts the effectiveness of the principles learnt in class and their applicability to real business scenarios. In Conclusion In general most organization tend to employ both traditional and new methods of cost reduction depending on the need of the organization. Cost reduction programs are necessary for every organization for the sake of profit maximization and expansion. However, if an organization makes a poor decision concerning the method it should use in cost reduction, it may face some consequences that may lead to collapsing of the company. Therefore, it is important for organization to conduct adequate research before employing any method of production Case: 8 Danielle Struble Summary of the Young Reader Case: In Budgeting Made Easy, Steve Hornyak discusses the immense amount of time and energy devoted to traditional budgeting. A lack of guidance and knowledge of appropriate budgeting tools makes it difficult for many that do not have a baseline knowledge of accounting. With traditional budgeting, different departments use a variety of spreadsheet or software programs to pull together their part of the budget information and then the finance department has to combine all the spreadsheets. Since many employees have not been trained in any kind of budgeting procedures it makes it difficult for the finance department to rely on the information given and formulate it into an accurate budget for the company. Many participants that try to develop a meaningful contribution may end up hindering the master budget plan since they are not given the appropriate tools and knowledge. Another pitfall of the traditional budgeting process is that the finance department must account for any time lags. Financial managers face the challenge of waiting for spreadsheets and budget components and then having to re-key information into the system all while struggling to reach deadlines. The biggest drawback of traditional budgeting systems however is the inability to access or use historical data during the budgeting and planning process. Without access to historical budgeting information creating a budget from the start or making alterations to existing budgets becomes tedious. Financial managers do not have access to all of the information they need and often end up having a large paper trail of data that is easy to lose or misinterpret. Fortunately new technology solutions are taking the drudgery, guesswork, and inconsistency out of the budgeting process. “E-budgeting” is a corporate service application that supports an organizations operations and efficiency. This solution completely automates the development of an organizations budget and forecast. E-budgeting allows companies to implement a budgeting system via the internet from any location in the world in order to budget effectively. This system allows all participants to log on through the internet to access their budget and any related information so that they can work on their plans. The Web-based budgeting system is a centrally administered system that is easy to use and provides flexible tools for the budgeting users. These corporate service applications bolster employee productivity by reducing the administrative tasks and supporting day-to-day operations. Although the web based budgeting system facilitates participation from a wide range of users it relies on the finance department to maintain ultimate control. E-budgeting increases flexibility and access to information is always at your finger tips. Financial managers and accountants no longer have to re-input data and re-tally results, instead they can request reallocations and model the results immediately. Instead of scrolling through hundreds of spreadsheets and trying to compile results financial managers are simply able to see if the company is making money and free up their time to allow for more strategic decision making. Another benefit of a web based budgeting application is that is lets managers access data from wherever they happen to be working whether it be at the office, at home, or even at the gym. The systems are accessible to users regardless of where they are which increases productivity and efficiency in the workplace. No longer having to push back deadlines because people from certain departments are traveling or don’t have access to the information needed. Many employees that aren’t directly involved in the financial department have little finance and budgeting experience. E-budgeting simplifies the budgeting experience making it easier for all departments to compile their information and the types of budgets that they are specifically responsible for. The system is composed of easy tools that allow for managers of each department to budget easily according to their needs. E-budgeting creates a realistic budget that is easy for all users to manage even those who have little financial experience. The application also allow for flexible planning through the use of its “what if” modeling capabilities. The application allows managers to see what would happen if, for example revenue increased and model the results accordingly. Individuals can forecast budgetary possibilities before they actually come up with a final projection. The interface recognizes that most users are non-accountants who may prepare a budget only once a year and allows everyone to submit their segment of the total budget. There are many benefits of the e-budgeting system including a reduction in administrative resources, increase in employee participation, and an overall more strategic focus for the financial department. The application helps to reduce the amount of time and costs necessary to carry out the budgeting process. The main benefit of an e-budgeting system is that it turns budgeting into a management tool instead of a chore for the accounting department. A web-based solution allows for the entire enterprise to produce a more accurate and strategically sound budget. Relationship of the case to my work experience: I currently work for a small medical imaging facility that does not use ebudgeting. The company that I currently work for can definitely benefit from using e-budgeting to help with forecasting to better plan and budget for the future. I think small businesses should use e-budgeting to look at potential profits using historical data. By looking at the historical data companies can get a better feel for their growth potential and plan the budget accordingly. Working for an imaging facility we go through many busy and slow periods over the course of the year. E-budgeting is an easy way to historically keep track of when the slow periods take place so that we can account for our expenses during that time. It will also help us to identify when marketing efforts need to be increased in order to drive sales. It is best to keep costs down during the slower periods since the business isn’t bringing in as much money. The e-budgeting system can also help to plan for large purchases carefully and early. Planned expenses like renovations or new equipment should be carefully timed and budgeted in order to avoid any financial burdens. Since the budget will never be static or consistent using e-budgeting will make it easier to make adjustments based on growth and profit patterns. Since many of the employees at my job do not have a finance background, everyone will benefit from the user definable interface that can be customized to each department’s specific skill sets. I think that it will also help our businesses financial department so that they can focus on more strategic activities for the growth of the company instead of consolidating spreadsheets all day long. Relationship of the case to material covered in class: We have discussed in class how and why organizations use budgets for planning and control. An important part of the planning process is developing a budget that translates the company’s objectives into financial terms. We discussed the many benefits of budgeting such as forcing managers to think ahead, promoting cooperation and communication, providing a benchmark, and evaluating performance. The master budget is a comprehensive set of budgets that includes separate yet interdependent budgets that cover all phases of an organization. Ebudgeting makes preparing the master budget a lot easier because it allows managers to easily look at last periods actual sales instead of going through hundreds of spreadsheets to find information. It also allows for a better insight into overall industry trends and allows managers to plan ahead to make certain they are meeting their operating and budgeting needs. A large part of managerial accounting includes planning ongoing operations so that managers can meet short term and long term objectives for the organization. The e-budgeting system makes it easier for managers to implement their plans for the business as well as to look back and ensure that goals are being met. If goals have not been met this application makes it easier for them to take corrective action and realize what needs to be improved for the future. Summary: In conclusion traditional budgeting consumes a large amount of financial officers and managements time and energy. It’s difficult for non-finance employees to pull together the facts and figures that will appear attractive to management. Ebudgeting supports an easy and efficient way for organizations to manage and control their budget online. E-budgeting reduces administrative costs and tasks, increases service levels to employees, and frees the financial department so they can focus on strategies instead of spreadsheets. Financial managers and accountants can steer their companies towards using these internet based applications in order to cut down on the paper trail and save time and energy for all budget participants. E-budgeting extends the budgeting process to a wider range of users and allows everyone to gain easy access to the interface from just about anywhere they can get an internet connection. Since now more than ever companies have been following strict budgets and managers are held accountable for their budget plans, e-budgeting provides the tools for executives to produce a more accurate and strategic budget than ever before.
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