You are the Director of the Managerial Accounting Department of a mid-size manuf

Question

You are the Director of the Managerial Accounting Department of a mid-size manufacturer of industrial and consumer products for the 3-D printing industry. The company is privately held, but requires extensive accounting documents to support various loans from banks and other financial institutions. The majority of the company shares are held by family members of the founder, who passed away a number of years ago. The son of the founder is the CEO and has been with the company for over 20 years. While he has experience in the business, he is totally dependent upon his staff for advice on accounting matters that impact both external and internal stakeholders.

While the company is positioned to take advantage of the recent interest in the expanding 3-D markets in both the industrial and consumer segments, there are cost pressures being experienced with new entrants into the marketplace. The CEO believes that there is a critical need to dramatically expand their marketing budget to counter this new competition. The family shareholders want to continue receiving their dividend checks, but the budget is under pressure to provide both the expanded marketing efforts and the dividend payments. The CEO is looking for ways to find the money without borrowing more money.

The CEO is seriously considering cutting costs in the support areas of the company. He is reluctant to reduce the Financial Accounting Department budget due to the requirements of the creditors, but he is looking to dramatically reduce the Managerial Accounting Department since it is primarily used to support internal operations. He is convinced that most of the functions currently provided by this department can be handled by the Financial Accounting Department.

As Director of the Managerial Accounting Department, you strongly disagree with the position of the CEO and believe that he doesn't fully understand the important role your department plays in all aspects of the company. You also don't want to lose your staff and don't want to lose your job. It is your goals to convince him that reducing your department is not a good idea and could permanently damage the company.

You must develop a convincing argument to make your case. You must provide the CEO with a wide list of value-added services your department provides that are critical to the company. This can be done by describing many of the concepts and applications used in Managerial Accounting and how they are the foundation for the planning and control of the company.

Explanation / Answer

To The CEO,

Ref : Presentation regarding the value added services provided by the Management Accounting Department:

Dears Sir,

This is a pesentation to bring to your attention the specialized services provided the Management Accounting department towards managing the performance of the company products and ensuring the profitability of the company.

1. Cost Management : This age of cut throat competition with new entrants , it is of utmost importance that we keep our costs within control. Our department prepares the detailed budgets with product wise forecast for costs and compares the actual costs with standard costs. This analysis brings out any inefficiency in purchase or manufacturing process and immediately draws the attention of the concerned area/function to control the cost deviation.

2. Price and Margin Management : The standard costing enables us to help in finalizing price of products after considering the overheads and mark up. For any special purchase offer or any sales increase with additional discount proposal are validated by our department to find if there is incremental profit in the special sales offer and accordingly decisions taken. Marginal Costing is widely used as Management Accounting technique in such decision making situations.

3. Make or buy decisions: In decision support to purchase and production management we determine the relative advantage and disadvantages in financial terms for any make and buy decision and the management takes decision acoordingly.

4. Capital Budgeting : In capital budgeting decisions , the selection process for capital investment projects are carried out by our department by employing various techniques like NPV, IRR and MIRR analysis.

5. The Monthly MIS and the Budgeted vs Actual Financial Statments and Cash flow analysis are prepared by us which provides the management with the actual vs budgeted revenue and cost analysis for revenue items, COGS items and operational expense items. This type of monthly MIS helps the management to keep control over the overall performance levels and give warning signals in advance in case of any adverse performance.

6. Balanced Scorecards: This is the output compiled by pur team that not only presents to the management the Key Financial Indicators but also KPIs from Customer sevice, Internal Business System , Human Resources areas. This scorecard reveals a lot of information on the strengths and weaknesses of the company and can reveal many insights.

I hope you find the above mentioned services as vital management decision support services which require specialised knowledge and experience and the services are crucial to sutain in this competitive environment.

We would hope that considering the critical value addition done by Management Accounting Division, the idea to close the division will not be materialized.

Thanks a lot for your understanding.

Best Regards

XXXXX

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