ACTY7212-Advanced Management Accounting
Jan 31,22ACTY7212-Advanced Management Accounting
Question:
Patterson Manufacturing has been in business in a small north eastern town for over a century. Wesley Patterson founded the firm in 1896 alongside a fast-moving stream. A water wheel, via a series of belts and gears, converted the stream’s energy into mechanical power to drive cutting tools, grinders, lathes and polishers. These tools were used to produce parts needed by other manufacturers. The firm quickly established a reputation for producing high quality products to exacting tolerances. The firm soon prospered.
Wesley Patterson closely monitored technical publications for the industries he served and frequently developed new products to fill emerging needs. He was particularly skilled at being able to identify simpler designs for manufacturers’ new products and then getting a contract to supply the needed parts. He also kept abreast of new manufacturing technology and was the first in the industry to convert to electric power when reliable generators became available.
The firm grew slowly but steadily until 1917 when it expanded rapidly to meet the demand for rifle parts for the war effort. By 1920 the firm was the community’s largest employer. Mr. Patterson donated the land that is now the town’s central park. He also paid for constructing the first municipal buildings.
The depression brought hard times to the company. However, the firm still takes pride in the fact that it did not discharge any employees during the depression years. Instead the firm and its employees cooperated by reducing each individual’s working hours (and wages) to spread the available work among all employees. During this time the firm also suspended paying dividends to its owners.
The Second World War again brought prosperity. At the war’s end the firm diversified into supplying products for the highway construction industry. Employees who had been with the firm through the depression were grateful for their treatment and contributed many ideas for new products and improvements to existing products. The firm rewarded its employees with wages and benefits that are still the most generous in the industry.
Required
1.If the product is outsourced the task force recommends decreasing the product’s selling price by 5% with the anticipation that unit sales volume will increase by 15%. Prepare an analysis which determines whether this outsourcing plan is financially viable.
2.Identify and evaluate the major non-financial considerations that should be considered when making the decision of whether to outsource the product
3.You notice that the manager had listed ‘implementing manufacturing efficiencies’ as one of the options for the task force to consider. Identify and analyse two management accounting techniques that would support achieving manufacturing efficiencies
4.After discussing with you your observations in parts 1 through 3, Patterson’s manager expressed concern with taking a short-term orientation. “We need a longer-term strategy for improving the business generally.” Prepare a written report for the manager discussing and evaluating ways to improve Patterson’s future profitability.
Answer:
Introduction
Patterson Manufacturing
Student Name:
Student Id:
Module Name:
Table of Contents
Task 1. 3
Task 2. 4
Task 3. 4
Task 4. 5
Reference list 7
Task 1
Outsourcing is referred to those practices of business where the company hires a third party to create goods or perform services that were initially provided by the company itself. Outsourcing is practiced as a cost-cutting measure. Companies do not involve any affiliated company for this purpose. This is structured by the third party according to the necessities of the company but in less amount money. The companies of small-to-medium enterprises have larger things to look after which come in their way of growth. The companies also use this procedure to minimize their labor costs. The important risks which the companies should think about while opting for outsourcing are security threats, extra time and effort, breaching of data, and miscommunication. In the international field, it can be beneficial, as the prices may differ. Outsourcing is one of the innovative strategies used by specialized and professional companies (Kiptenko et al., 2021). In terms of the company operated by Patterson Wesley is a small business of warehouse manufacturing. It outsourcing option suggests the depression faced by the company. The task forces’ recommendation states the decrease in selling price will increase the unit sales volume. According to many economists, outsourcing is a beneficial strategy for any business through break-even analysis, the strategy may be determined as beneficial. Its components are fixed costs and variable costs, which determine the analysis by dividing the total of fixed costs by the price per unit. It also determines the contribution through the extraction from the selling price and total of variable costs. According to this analysis, this outsourcing is considered to be financially viable.
Figure 1: Outsourcing practices
Source: (Magableh, 2018)
Task 2
Identification and evaluation of the major non-financial considerations that should be considered while deciding whether to outsource the product:
- Resources and technology: These two are those considerations that are necessary for outsourcing. It is the confirmation about the tools, processes, methods, and techniques that are capable of handling the outsourcing needs. It has an impact on the outsourcing of the firm (Munjal, Requejo & Kundu, 2019). Whether the workers are trained accurately for the job or not is to be confirmed. The systems that are going to be used are required to be updated.
- Ability to meet deadlines: Time is an important factor in outsourcing. The meeting of deadlines is necessary; therefore, the promised quality and time limit should be maintained and achieved by the outsourcing party.
- Supervision: Everything should be taken care of by the third party, this should be ensured by the company. It cannot leave all the processes and decisions solely on the third party.
- Trustworthiness: Before making the final decision, the company must study the third party thoroughly through different sources. Any wrong decision can lead to major setbacks. Trust should not be broken through any unfair means.
- Service Level Agreement: This document should be created before the outsourcing for partnerships. Every single point and demand and promise should be made clear in this document in written form.
- Communication: The company should always stay in touch with the third party and analyse and evaluate the procedures of the third party to achieve the promise provided. Any improvements or queries should be immediately informed to the third party by the company.
Task 3
Two management accounting techniques that would support achieving manufacturing efficiencies:
- Product Costing: This management accounting technique surrounds the costing of the product. The product costs include different costs of making the product eligible for selling. These different costs are the costs of supplies that are related to consumable production, wages of the workers, transportation costs, compensations, fees of retail stocking, costs required for buying the raw materials, and many more. Constructing a business model considering all these costs will be beneficial for the company (Engh, Zaharia, & Bordeianu, 2018). The companies have a huge list of considerations for generating a minimum return from the market. Manufacturing efficiencies require the total estimation of the product for its execution. To apply those efficiencies, the managers have to be very sure of the product costing as the whole manufacturing system is dependent on it.
- Constraint analysis: To imply the efficiencies, it is required to deal with the inefficiencies first. The company’s inefficiencies are caused mainly due to some issues that hold back the potentiality of the company. Thus, these inefficiencies are the setbacks of the company which does not let it grow. These inefficiencies are required to be identified and resolved, as it would generate revenue as well as some profit for the company. The constraints in its capacity can be effective in recycling its channels (Xu, Shi & Chen, 2020). The companies need to work on these inefficiencies to enhance the potential capacity to manufacture for the company. This information regarding the constraint in the production should be shared by the manager to reflect the effect of the inefficiencies and also to encourage the workers to resolve the issues for the betterment of the company.
Task 4
Patterson Wesley’s business has set a benchmark for the other companies to achieve such establishment within a shorter time. It has always worked for the betterment of its consumers, therefore, working according to the emerging needs of the time. The company’s profile is well-known for its effort and its promises. Even the world war could hardly affect productivity. Such a company can tackle any consequences. The company has even provided a reduction in every working hour of the employees in times of crisis. Since the company has achieved the support of its employees, the company should work on the distribution of work and raising higher production without hampering the working hours of the employees. The company can also use the technologies invented during the time for production purposes. It may be time-consuming but it will be effective in the long-term course. The rapid development of manufacturing companies like Patterson’s would improve the country’s economic growth (Kang et al., 2018). The implementation of manufacturing efficiencies, resolving the inefficiencies at first, will have an advantage in the market field. The considerations before outsourcing should be thoroughly examined and implied afterward. The company can benefit from outsourcing its products, which will not only decrease its labor costs but also increase its expansion in the international market.
Reference list
ENGH, E., ZAHARIA, V., & BORDEIANU, D. (2018). A SYSTEM OF MANAGEMENT INTEGRATION OF PRODUCT COSTING IN INDUSTRY. Retrieved from: https://web.archive.org/web/20200711085749id_/http://aos.ro/wp-content/anale/TVol10Nr2Art.3.pdf
Fazili, Y., Robertson, B., & Phillips, W. (2019). Green Service Level Agreement Compliance for Optical WDM Networks. Journal Of Ubiquitous Systems And Pervasive Networks, 11(2), 9-14. DOI: 10.5383/juspn.11.02.002
Kang, Y. Q., Xie, B. C., Wang, J., & Wang, Y. N. (2018). Environmental assessment and investment strategy for China’s manufacturing industry: A non-radial DEA based analysis. Journal of Cleaner Production, 175, 501-511. DOI: https://doi.org/10.1016/j.jclepro.2017.12.043
Kiptenko, V., Razumova, O., Boriushkina, O., Romanova, V., & Negoda, A. (2021). Outsourcing as a Modern Form of International Labor Division. International Journal of Computer Science & Network Security, 21(8), 43-50. DOI: https://doi.org/10.22937/IJCSNS.2021.21.8.6
Magableh, A. (2018). Selective Outsourcing of IT Functions is the best option. Open Science Journal, 3(1). DOI: 10.23954/osj.v3i1.1313
Munjal, S., Requejo, I., & Kundu, S. K. (2019). Offshore outsourcing and firm performance: Moderating effects of size, growth and slack resources. Journal of Business Research, 103, 484-494. DOI: https://doi.org/10.1016/j.jbusres.2018.01.014
Xu, L., Shi, J., & Chen, J. (2020). Pricing and collection rate for remanufacturing industry considering capacity constraint in recycling channels. Complexity, 2020. DOI: https://doi.org/10.1155/2020/8391252
