Cadel Specialty Bicycle Management Accounting Systems ACCT2195 Name: Nguyen Thai Son ID: S3296794 Lecturer: Keshav Dayalani Table of Contents Executive Summary3 Introduction4 I. Cadel Specialty Bicycles’ (CSB)5 A. Business mission5 B. Mean of competitive advantage6 C. Key Success Factors (KSFs)8 II. Management Accounting System of CSB9 ?Personnel9 ?Scare resources10 ?Activities11 III. Performance measurement & Reward System (PMRS) and its roles11 1. The factors to be measured12 2. A specific performance target12 . A reward attached to the performance target12 IV. Limitations of current PMRS14 A. Limitation14 B. Dysfunctional behavior15 V. Recommendation for new PMRS16 Conclusion17 References18 Appendix20 Executive Summary Cadel Specialty Bicycle (CSB) is a successful business of which nature is made-to-order bicycles. In other words, each bicycle of CSB is assembled in accordance with customer’s specification. The business aims to target on the niche market in which almost people are committed cycling enthusiast.
Due the success of the first store located in Doncaster, Victoria, Australia, CSB has recently expand its business by opening two new stores located in Geelong & Black Rock and each store has different potential in the track of development . However, CSB has faced problems of personnel & resources management because the business had not applied the suitable strategies within the expansion. Although, the company plans to implement a new management accounting system (MAS) to deal with these problems, there still are weaknesses contained in the new MAS.
Hence, the purposes of this report are analyzing the current system and suggesting new suitable MAS for the business. The first demonstration of the report is Background & Current position of CSB, which is used as a foundation for developing suitable MAS. The business mission of CSB, classified as “Question mark”, is building as well as increasing the market share. CSB creates its competitive advantage based on the differentiation of product/service and the niche market. However, CSB has not reached the Cost-cum-Differentiation advantage yet.
CSB may focus on the five key success factors (KSFs) including Proper decentralization & measurement of manager’s performance, Good relationship with suppliers, Establishing appropriate costing system & minimizing cost, Maintaining the highest level of customer satisfaction and Product & Service Quality The second part of the report focus on evaluating the role as well as benefits of tools/techniques of current MAS in supporting the business in term of of personnel, scare resources and activities.
Next, the role of Performance measurement & Reward system (PMRS) within the business is clearly analyzed in relation to directional & motivational influences on behavior. The report also states the limitations of the current PMRS which potentially leads to dysfunction behaviors. Finally, the report will suggest the suitable PMRS for the business which may effectively & efficiently support CSB in the track of its success. Introduction One of the most essential factors which guide organizations and businesses toward success is management accounting system (MAS).
It is always a smart decision for business to apply integrated MAS which provides accurate analysis report by gathering financial data from operations (sales, inventory & cost). As a result of having MAS, business gains sufficient advantages in streamlining operations procedures, reducing costs and building capital for expansion. Refer to the case of Cadel Specialty Bicycle (CSB), the business mainly focus on selling made-to-order bicycles and guaranteeing the product/service quality.
After the expansion (two new stores), the business seems to get into trouble with management as well as operation. This report will demonstrate the business analysis, evaluate the current MAS as well as suggest new potential/appropriate MAS. I. Cadel Specialty Bicycles’ (CSB) A. Business mission Business mission, “which usually reveals purpose of operation, value and priorities of company” (John&Richard 2009), can be considered as a fundamental factor in conducting appropriate MAS for the business.
The following criteria will clearly illustrate the current mission of CSB (build, hold, harvest, divest): * Importance of externalities One factor that significantly contributes to the potential development of CSB is the external environment. Recently, bike paths have become popular around Melbourne as people tend to reduce using cars. Therefore, there has been a significant growth in the market for bicycles. Utilizing the bike paths, CSB opened two new stores (Black Rock & Geelong) which seem to have great potential for development. * Market share expectation
Due to the well establishment, Doncaster store (touring bikes) is highly demanded by customers that provide the store many opportunities to develop. Besides, Geelong store (mountain & touring bikes) also has great potential thanks to its advantageous location although the demand is not yet as high as at the Doncaster store. As a result of having great potential, the Market share expectations of the two stores seem to be high. Although CSB does not own a large part of the bicycle market at the moment, the business has a substantial growth rate.
Base on facts of the case, “CSB aim to capture a significant proportion of this growth in the future”. Boston Consulting Group Model Relative Market Share (cash source) Mission = Hold Mission = Harvest Mission = Build “Dog” Mission = Divest High High Low Low “Star” “Question mark” “Cash cow” Market growth rate (cash user) Overall, CSB has high Market growth rate while owning low market share. Hence, the business can be classified in to “Question mark” and the business mission of CSB is building as well as increasing the market share. B. Mean of competitive advantage
Competitive advantage is a special characteristic that a business has over its competitors, enabling the business to gain greater sales or profit within the competition. The two common competitive advantage options, which have been applied by CSB, are Differentiation & Niche market. * Differentiation: CSB differentiates its products & services based on certain criteria which are Function & Customer service. * Function Unlike normal bicycle business, CSB primarily applies the made-to-order function for all three stores which assemble customized bicycles based on customer specifications.
In order to ensure the timing & success of this approach, a large inventory of different bicycle parts is held by each CSB stores. * Customer service CSB puts much effort on the operating customer service as well as interacting with customers. Cadel- CSB owner spends significant time in taking care of store’s day-to-day operations and often engages directly with customers to make sure that customers can purchase desirable bikes. CSB also sets a limit for the waiting time (time for customized bicycles to be available) which are less than two days of the initial consultation.
The applied post-sale service is calling the customer after a week of taking possession of CSB’s products to ensure the customer’s satisfaction, and offering free-of-charge changes if necessary. Additionally, free lifetime after-sales service is also offered in which customers only have to pay for parts required. * Niche Market CSB targets on specific segment of market which is cycling enthusiast through the offer of customized bicycles. This customer group willing to spend more for qualified & desirable product Business competitive advantage Relative Cost Position Cost-cum-Differentiation Advantage Stuck-in-the -middle” Differentiation Advantage Low-cost-Advantage Superior Inferior Inferior Superior Relative Differentiation Position Although CSB gains moderate differentiation advantage, the business did not consider much about the costing system (estimating price without real cost data). Therefore, CSB has not reached the Cost-cum-Differentiation advantage yet. C. Key Success Factors (KSFs) In order to construct appropriate & efficient MAS, business may consider the essence of critical KSFs which determine its success (cost and efficiency, quality, time, innovation).
Gaining sufficient knowledge of KSFs will support the business to define the necessity of promoting strengths and competencies that match those factors in order to gain competitive advantage and achieve the business success (Jorge&Donald 1989). Refer to CSB- a growing business with great potential, certain KSFs would be as the following: * Product & Service Quality Cadel spends considerable time in training the store manager and often personally assembles & checks the customized bicycles to ensure the Service & Product quality.
As a result, CSB is currently well known as a business providing high quality, customized bicycle. * Maintaining the highest level of customer satisfaction Giving customers more than they expect is the basic concept of this issue. As Cadel believe that specialized customer service is a KSF of CSB, he put many efforts in maintaining the customer satisfaction such as calling the customer after a week of possession, offering free lifetime after-sales service & limiting the waiting time (2days). Establishing appropriate costing system & minimizing cost A weakness of CSB is that the business operates without real cost data. Hence, establishing suitable costing system has become a fundamental mission in the track of reaching success. Besides, CSB has to consider cost minimization to achieve Cost-cum-Differentiation advantage. * Good relationship with suppliers Since the expansion, the demand for supplies of CSB has increased due to the requirement of more inventories for the two new stores. Therefore, finding and maintaining good relationship with suppliers is also essential. Proper decentralization & measurement of managers performance It is essential that Cadel distributes the authority to store managers properly because the business structure has become more complicated since the expansion and Cadel cannot play all roles of the business. II. Management Accounting System of CSB In order to solve the problems arisen from the expansion, Cadel’s brother has suggested Cadel to develop a MAS which significantly supports the business management in term of personnel, scare resources and activities. The following analysis will demonstrate the roles & benefits of each tool included in the MAS: Personnel * Supplier performance measures (SPM) SPM is a critical initiative for business dealing with multiple suppliers. The main role of SPM is integrating supplier quality which helps the business have accurate visibility toward supplier delivery and avoid hidden cost drivers from poor quality. As a result, SPM directly decreases business risks and revenue losses Besides, SPM is a vital tool for motivating improvement and ensuring that products meet the required standards. SPM also supports in determining good suppliers so that CSB can maintain relationship with those suppliers.
Related KSFs: Product quality; Good relation with supplier * Responsibility accounting system (RAS) RAS is used as an internal system which improves cost control and business’s performance. Its main role is ensuring the responsibility of individual managers toward elements of business performance in which they gain control. In RA, each store/department will be assigned certain stated goals and relevant managers will be judged on how well they meet the goals. As a result, CSB is able to detect the weak areas within the business and make correction properly Related KSF: Proper decentralization & measurement of managers performance Scare resources * Net Present Value (NPV) analyses NPV is an efficient method used in determining capital investment decisions. A potential project should be proceeded if its NPV value is positive unless there is a superior investment option offered. NPV allows CSB to make proper investment decision and invest in worthwhile projects because NPV does not only calculate the net cash flow from the project but also considers various associated factors like time value of money, opportunity cost & risk of prospective cash. Related KSFs: Minimizing cost Costing system The main role Costing system within MAs is collecting, analyzing & reporting the cost data that enables the owner and managers to monitor cost for reducing wastage and misuse of resources. Within the operation of business, it is easy to identify direct costs which associate with particular activities. However, indirect costs are those incurred in common or joint objectives so it cannot be clearly identified with particular activities. In order to assign indirect cost to projects accurately, Activity base costing system (ABCS) should be applied.
ABCS is an efficient method which calculates and reduces operating the cost by finding key activities and its cost drivers. Consequently, the cost can be assigned accurately and the costing system can operate smoothly. Overall, costing system enables CSB to view all expenditures and manage its cost effectively Related KSFs: Establishing appropriate costing system & minimizing cost * Budget preparation The core role of Budget within CSB is tracking all of the money coming into the business along with all of the money going out.
The budget can be designed to be detailed enough to cover numerous streams of income & expense. Establishing proper budget can significantly support the business in planning the use of resources, motivating individuals to achieve performance & supporting forecast. * Activities * Inventory management system – Economic Order Quantity (EOQ) The main role EOQ model is providing the most economical quantity of items which CSB should order to maximize value & minimize costs when re-stocking inventory.
Applying EOQ does not only help the business to reduce Storage & Holding cost but also support in maintaining sufficient inventory levels to meet customer demand. It seems that customer service can be improved as inventory is available when needed. Related KSFs: Establishing appropriate costing system & minimizing cost; Maintaining the highest level of customer satisfaction * Profit and loss statements (P&L) P&L is one of the major financial statements which clearly demonstrate the profitability (revenue, expenses and profit) of the CSB during a specified time interval.
Hence, the basic role of P&L is indicating whether the business is profitable or not. Conducting a proper P&L can enable CSB to notice the areas needing improvement and provide an overall idea of how much the business owes compared to how much it owns. Besides, a truthful P&L report can also support CSB in planning ahead to the next financial period. III. Performance measurement & Reward System (PMRS) and its roles Performance measurement is a process of gathering & reporting nformation regarding the performance of the business & individuals. To be effective, Performance measurement must be combined with Reward system and the rewards provided are based on performance. The overall role of PMRS is to periodically monitor performance to judge how well the business is running and motivate the personnel’s performance by Reward system. Both performance measure and rewards provide directional and motivational influence on behavior. However, each element of PMRS has its own roles which complement the system.
PMRS contains three elements: 1. The factors to be measured| The first element clearly demonstrates the factors which will be measured in order to communicate important aspects of the business toward employees. Thanks to that, employees are able to concentrate their work into informed aspects/areas| * “Directional influence on behaviour” is mainly fulfilled by the roles of the first 2 elements (Measured factors & Performance target). Within this method, employees are directed to achieve the desired behaviours. | 2.
A specific performance target| The main mission of the second element is narrowing the targeted aspects into specific tasks/activities so that employees can focus, put effort and accomplish these tasks. Besides, the provided criteria in the system is also a base for owner/manager to provide feedback to improve future performances| | 3. A reward attached to the performance target| The Reward system is based on the concept of attracting, retaining and motivating people. As employees can be motivated by intrinsic (e. g. elf esteem) and extrinsic rewards (e. g. bonus), monetary reward is not the only important component of the Reward system. There are other factors which also efficiently encourage employees in improving performance. Based on Theoretical Framework (Khan KU, Farooq SU & Ullah MI, 2010), there are generally four main independent variables of reward which are payment, promotion, recognition and benefits. Promotion seems to be the most efficient motivation as almost people tend to have ambitiousness of getting better positions in the business/company.
Moreover, different reward strategies would have a different motivational impact on diverse people. By providing attractive incentives, Reward system encourages individuals to actually undertake the tasks with intensive willing. According to Khan KU, Farooq SU & Ullah MI, 2010, “there is a statistical significant relationship between all of the independent variables of reward with dependent variable employee work motivation, all the independent variables of reward have a positive influence on employee work motivation”.
Overall, Reward system plays role as a way of having people work harder. | * “Motivational influence on behaviour”, meaning individuals are motivated to intentionally acquire the desired behaviours, is mainly achieved by the role of the third element which is Reward system. | In this case, CSB applies reward strategy in term of “bonus” providing to each store manager up to 20% of their quarterly income * Meeting sales budget * Bonus of 2% of manager’s quarterly income if they meet the sales budget for each quarter. * Meeting profit budget Bonus of 10% of manager’s quarterly income if they meet the profit budget, prepared at the start of each quarter * Achieving favourable cost variances: * Bonus of 4% of manager’s quarterly income if all favourable variances are less than 10% of the initial budgeted cost; * Bonus of 8% of manager’s quarterly income if all favourable variances are 10% or more of the initial budgeted cost. * Directional influence supports individuals in focusing on the targeted areas and tasks. Besides, Motivational influence helps employees to do the work voluntarily and put much effort to successfully accomplish it.
Moreover, Motivational influence is almost always less intrusive than Directional influence. As a result, the business’s personnel cannot be well managed without the combine of Directional influence & Motivational influence. IV. Limitations of current PMRS A. Limitation B. Dysfunctional behavior * Dysfunctional behavior means that individuals within the organization/business do not function properly in accordance with the organization’s direction. Dysfunctional employee behaviors often occur due to the rapaciousness of individuals or conflict between employee’s interest and the organization’s interest.
The general purpose of Dysfunctional employee behaviors is gaining benefits (either for personal or department) from organization’s gaps. * In this case, as a result of lack of measurement in input and process stage, managers have opportunities to engage in Dysfunctional behavior. It can be explained by the following situation: * If there is no mechanism for monitoring the consistency between input and output, managers may provide “unreliable report” which shows that they have reached the performance target and deserve rewards. Lack of input measurement also leads to the problem that managers purchase low quality material to reduce operation’s costs in order to reach the defined cost target. Consequently, it’s very difficult to discover such Dysfunctional behaviors without proper measurement. V. Recommendation for new PMRS Besides the Performance measure, several common Reward strategies are also suggested below: Conclusion As MAS is essential for business’s operation, CSB cannot successfully expand its business without proper MAS. However, the new MAS, which CSB has planned to implement, still has several weaknesses.
Therefore, the main purposes of this report are evaluating the current position (Business mission, Competitive advantage & KSFs) and current MAS (including PMRS). The report also suggests the potential PMRS for the business. References ‘Competitive Advantage’, 2012, Investopedia US, viewed 28 July 2012, <http://www. investopedia. com/terms/c/competitive_advantage. asp#axzz21h1qWFmY >. Daniel, H, 2011, ‘Benefits of NPV’, BenefitOf, 27 July, viewed 28 July 2012, <http://benefitof. net/benefits-of-npv/>.
John, AP II & Richard, BR 2009, ‘Strategic management: Formulation, Implementation, and Control’, 11thedn. , McGraw Hill, Singapore. Jorge, AS & Donald, CH 1989, ‘Key success factors: Test of a general theory in the mature industrial –product sector’, Strategic Management Journal, vol. 10, no. 4, pp. 367-382. Khan, KU, Farooq, SU & Ullah, MI, 2010, ‘The Relationship between Rewards and Employee’, Research Journal of Internat? onal Stud? es, May, Issue 14, pp. 37-42. Kumar, V, 2011, ‘Costing System’, Accounting Education, 14 February, viewed 27 July 2012, ;http://www. vtuition. org/2011/02/costing-system. html;. Meer, NVD, 2010, ‘The Importance of Competitive Advantage’, Market views, 12 September, viewed 28 July 2012, ;http://www. sharenet. co. za/marketviews/mv_view_article. php? id=1650;. Morris, K, 2012, ‘What is A Management Accounting System’, eHow Money, viewed 28 July 2012, ;http://www. ehow. com/facts_5460765_management-accounting-system. html;. ‘Motivational Influences on Attendance in Your Organization’, 2011, HR BLR, 1 January, viewed 27 July 2012, ;http://hr. blr. om/HR-news/Performance-Termination/Attendance/Motivational-Influences-on-Attendance-in-Your-Orga/;. Piasecki, D, 2012, ‘Optimizing economic order quantity (EOQ)’, Inventoryops, viewed 27 July 2012, ;http://www. inventoryops. com/economic_order_quantity. htm;. Reyna, SM, 2012, ‘Key Success Factors of Your Small Business’, Power Home Biz, viewed 27 July 2012, ;http://www. powerhomebiz. com/vol95/key. htm;. ‘Supplier Performance Management’, 2012, Metric Stream, viewed 28 July 2012, ;http://www. metricstream. com/solutions/supplier_performance. tm;. The university of Texas, 2012, ‘Performance Reward’, tmc. edu, viewed 27 July 2012, ;http://hr. uth. tmc. edu/Training_Development/perplan/reward. html;. ‘Value Measurement’, 2004, Performance measurement, viewed 27 July 2012, ;http://www. performance-measurement. net/news-detail. asp? nID=28;. ‘What is a Costing System’, 2012, Wise Geek, viewed 28 July 2012, ;http://www. wisegeek. com/what-is-a-costing-system. htm;. ‘What Is Responsibility Accounting’, 2012, Wise Geek, viewed 28 July 2012, ;http://www. wisegeek. om/what-is-responsibility-accounting. htm;. Appendix * Porter’s Five Forces model for supporting an analysis of external environment Threats of New Entrants Bargaining Power of Suppliers Bargaining Power of Customers Rivalry among Industry Competitors * Porter’s value chain analysis for supporting an analysis of internal environment Design Production Marketing Distribution Support Activities: Finance, HR, Legal, IT Motivational influences A number of important motivational influences playing a strong role in encouraging employee include: * Job scope.
Improving or enriching the nature of a job substantially reduces absenteeism. * Stress and conflict. Levels of absenteeism are higher in situations of job stress, anxiety, tension, and lack of role clarity. * Leadership style. Your leadership style affects attitudes that affect absenteeism. * Co-worker relations. Mutual tolerance and the absence of tensions among co-workers have a positive effect on attendance. * Pressures to attend. The economy and job shortages will influence a person to be more conscientious about job attendance. * Work group norms.
When members of a highly cohesive group view coming to work to help co-workers as a desirable work ethic, job attendance is attractive. * Personal work ethic. A high regard for work as a personal value positively affects job attendance. * Organizational commitment. Compatibility with the mission, goals, and values of the organization has a positive impact on attendance. You can affect most of these motivational factors significantly by the way you manage your department and supervise your employees. By encouraging open communications, by making employees feel needed and appreciated, by making their jobs as
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