Responsibility Center for the Company's Sales Districts - Top Cables Company - Case Study Example

Mаnаgеmеnt Control System Name Course Lecturer Date Part 1 Top Cables Company Critical Success Factors The company would reap dividends by applying strategic planning when it approaches it in a disciplined process with bottom up participation and top down support. One of the companies significant critical success factor is market share. To increase its profitability, the company must increase its presence in the market1. This is within the company's control, by manufacturing top quality products and increasing marketing campaigns, the company would be able to increase its market share. This would make it able to sell more products in different markets and hence increase its profitability2. Although the company is has no influence over the price of its products, increase market share would increase sales and consequently the profitability. This factor goes hand in hand with production of quality products. Customers would choose and buy more of the company products if they are of superior quality than those of other companies in the market3. As such, the company should focus on decreasing product defects as much as possible. This is within the control of the company as well. This is critical to the company’s objective of increasing profitability. Another critical success factor to Top Cables Company is strategic marketing4. The company should increase the awareness of its products. Some of the customers in different market segments may not be aware of the company’s quality products. As such, the company should aim to formulate and implement a strategic marketing of the company and the products. Although this might not result in instant increase in profitability, it aligns the company to increased sales and profitability in the near and long term future. Another critical success factor is increasing efficiency. The company can increase profitability by cutting down on costs. However, the company must be very careful not to cut costs and affect the quality of the products. It should do this in a systematic way so that it does not affect product quality. Responsibility Accounting Arrangement The responsibility-accounting arrangement that is most consistent with achieving success on the company's critical success factors is cost center arrangement5. This arrangement would better control of costs and the performance. The manufacturing and sales managers would be directly responsible for the company performance which they are in control. The manufacturing managers would be responsible for the costs incurred on manufacturing. In this way, they would be able to keep and maintain the cost of manufacturing as low as possible. This would cut costs and hence increase company profitability. Cost center is most important especially to the six manufacturing plans of the company. This is because the manufacturing plants incur costs and expenses. The managers are therefore responsible for controlling the purchase of raw materials for manufacturing, labour costs, overhead costs and other expenses in relation to manufacturing quality products6. In addition, the managers are in control and also responsible for the quality and cost of the company products. The managers are able to keep the cost of the products as low as possible through various ways such as increasing efficiency and eliminating unnecessary expenses. On the other hand, the sales managers would be able to increase sales because of superior and quality products as manufactured by the manufacturing division7. Although the sales division is better suited as profit centers, they would be able to increase the company profitability if the products are of high quality and hence selling fast. If the manufacturing division increases the cost of the products, the sales division would strain to make sales. However, if the manufacturing managers maintain the cost of the products low and increase product quality, the sales division would be in a position to make increasing sales and hence increase profitability of the company. These are consistent with achieving success on the company's critical success factors. Responsibility Center for the Company's Sales Districts The most appropriate responsibility centre for the company's sales districts is revenue center. This is because the amount of sales that the sales districts make dictates the revenue of the company. The sales district managers should therefore be held responsible and accountable for revenue of the company. Furthermore, the managers are in a position to increase the revenues by making more sales. They also in a position to minimize expenses related to sale of products that are attributable to the sales districts8. The managers of these districts are directly in control of the sales revenue generated by the company. As such, it is the responsibility of the managers and the sales districts as a whole to keep increasing and generating more revenue. The amount of revenues made by the sales districts determines the amount of profits to the company. Higher revenue and less expense would increase the profits. Revenue center is the most appropriate responsibility center for the sales districts. Proposed Responsibility Accounting Arrangements The two vice presidents proposed cost center and profit center as the responsibility accounting arrangements. These two arrangements are best suited to the company but there is a disagreement between the two vice presidents on which department they should be allocated or assigned. Categorically, the manufacturing plants should be the cost centers. The vice president, in charge of the manufacturing division,and the six managers in charge of the plants are in direct control of the costs of company products. As discussed above, the managers control the costs of manufacturing. They know the costs of each product as well as how to efficiently reduce the unit costs without compromising the quality of the products. In the event that the company experience rush orders, cost center is best suited to making good decisions about accepting or rejecting the rush orders9. The cost of the products is very significant to the company. This is because the company may not have the capacity to manufacture such products on a short notice. It would mean the company would increase costs in order to be able to manufacture. Although it stands to more profits from the orders, they may be too costly for the company to manufacture. In addition, the company would not want to compromise10 or lower the quality of the products by manufacturing in a very short period. This is because it may lose business opportunities. This is specifically important for the long term future of the company in making sustained sales and increasing market share. Part II Norton Company Budgetary Slack Budgetary slack is an intentional allowance for extra expenditures in the future cash flow of the company as indicated in the discussion. Marge and Pete might behave in this manner because they want to meet the targets and projects at the end of the year without hard work and to make their performance evaluation very good11.However, this indicates that they are pessimistic about working hard to achieve the targets. By doing this, they alter the budgets so that it does not work properly. They want to achievecertain objectives through unethical manner (their actions of adjusting the projections are unethical). Marge and Pete should take responsibility and work hard to achieve the projections and targets instead of making the adjustments. This would increase the company profitability and alsoexplore new markets for their products. Marge and Pete will realize some benefits from the use of budgetary slack. One of the benefits is that they will have flexibility for working underuncertain circumstances12. The projections made are subject to changes externalinfluences that the company may not have control such as inflation and adverse market conditions. As such, the budgetary slack gives them the flexibility to operate under strangeconditions. In addition, they Marge and Pete stand to benefit from working without pressure13. High projections may make them to work under increased pressure to meet the projections at the end of the year. This may result in postponing some expenditure to the next fiscal period or they aggressively pull sales to the current fiscal period. Working under such pressure may also make them to make wrong decisions in their respective departments and this may make the company to experience problems in the coming fiscal periods. Marge and Pete would make decisions based on the current situation and to achieve the projections rather than make decisions based on the future and long term success of the company. As such, budgetary slack would enable them to avoid such increased pressure and hence make good decisions. The budgetary slack would also benefit them and the company because the company may not have enough resources. Consequently, the managers and the company may strain to meet the projections. However, the budgetary slack enables then to use the available company resources adequately without straining. Effects of Budgetary Slack To Marge and Pete Personally and the Organization as a Whole Marge and Pete may not be solely motivated by maximising the profitability of the company but rather by some self-interest motives14. These motives explicit themselves in the company's budgeting process as Scott found out. As such, they make the budgetary slack in order to suit their own interest. This is detrimental to the company and also to them. They start making decisions that are consistent with their own interests rather than that of the organisation of maximising profits. This raises control problem in the company. In addition, they become susceptible to making wrong decisions because of the habit. It reaches a point they cannot make a sound decision for the organisation. Such actions underestimate the revenues and overstate costs, they underestimate the expected output15. In such case, Marge and Pete create a lower performance targets for themselves and their departments. As such, they do not work to their full potential and true performance capabilities. When such targets are used as the basis for evaluating their performance, they result in favourable evaluation. These actions results to dysfunctional behaviour because of using inappropriate performance measures. Moreover, it makes Marge and Pete to develop dysfunctional decision making that may include reporting wrong and invalid data, they also develop job related tension16. These actions risk the future of the company to fail. The budget targets are tied to the performance evaluation as well as individual goals. Injecting the budgetary slack improves their performance at the expense of the company. Another adverse effect of the budgetary slack is that Marge and Pete convert the slack in to profit when the company is performing poorly17. There is no actual profit gained by the company and this serves to deteriorate the company performance. Notably, such actions hinder the managers from noticing the real circumstances facing the company in their position as managers. They do not expose themselves to real challenges that affect the company, the market and the economy. 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