i got 7 questions in the assignment in the PDF file on P16-17

They are all about the case story

The total of the words are 1500 words

without any format

QUEENSLAND UNIVERSITY OF TECHNOLOGY QUT Business School School of Accountancy AYB321 Strategic Management Accounting SEMESTER ONE 2016 MID-SEMESTER CASE STUDY (Weighting Total - 30%) Due: Team Contract - Thursday 14 April 2016, 7pm (1 per group) Team Case Study - Thursday 5 May 2016, 7pm (1 per group) Team Process Report- Thursday 5 May 2016, 7pm (1 per group) Individual Team Work Reflection - Friday 6 May 2016, 7pm (1 per person) Submission: Blackboard - Team Contract Turnitin - Team Case Study Blackboard - Team Process Report Blackboard - Individual Team work Reflection Type: Groups of three or four people. Students must be registered to the same tutorial Length: Case Study - 1,500 words maximum This assessment item assesses the following learning outcomes: Higher Order Thinking (HO) 2.2 Exercise independent judgement and initiative in adapting and applying knowledge and skills for effective planning, problem solving and decision making in diverse contexts. Professional Communication (PC) 3.1 Use information literacy skills, and communicate effectively and professionally in written forms and using media appropriate for diverse purposes and contexts Teamwork and Self (TS) 4.2 Apply teamwork knowledge and skills for effective collaboration across diverse purposes and contexts AYB321 Mid-Semester Case Study Late Submission of Assessment: In both your QUT study and your professional life you will be expected to meet deadlines. In keeping with this expectation, assessment submitted after the due date and time will not be marked and will receive a grade of 1 or 0. You should submit the work you have completed by the due date and it will be marked against the assessment criteria. This will apply to all units unless otherwise specified. As this assessment involves a team of three or four students and the team has a number of weeks to complete the assessment task, it is exempted from the QUT assignment extension policy. Thus students will be unable to apply for an extension under the QUT assignment extension policy. Penalties Failure to submit the Team Contract (Step 1 / Appendix 1) by the due date and time, will result in a reduction in the total marks awarded for your assessment. Failure to submit the Case Study (Step 2) by the due date and time, will result in your group receiving 0 for the case study component of the grade, resulting in your group only being able to receive up to a maximum for 10/30. Failure to submit the Team Process (Step 3 / Appendix 2) by the due date and time, will result in a reduction in the total marks awarded for your assessment. Failure to submit the Individual Reflection (Step 4 / Appendix 3) by the due date and time, will result in a reduction to your individual mark. Further information on late assignments and extensions https://www.student.qut.edu.au/studying/assessment/extension can be found at: The MOPP Policy relating to Late Assessment and Extensions can be found here: http://www.mopp.qut.edu.au/E/E_06_08.jsp Submission Processes: Step 1: The Team Contract (Appendix 1) is to be submitted electronically via Blackboard by Thursday 14 April 2016, 7pm. Only one document should be submitted per group. In the contract you will nominate one team member to submit the contract, another to submit the Case Study and one other who will be responsible for submitting the team process report. Please ensure the names, student numbers and signatures of all team members are included on the document. 2 AYB321 Mid-Semester Case Study Step 2: The Case Study needs to be submitted online through the Turnitin link in Blackboard by Thursday 5 May 2016, 7pm. Only one person in the team (the person nominated on the contract) needs to submit these. If you wish to check your case study for plagiarism, prior to submission, a draft submission link will be made available. Please ensure that if you choose to use the draft submission link you remember to also submit a final copy otherwise it will not be counted. Step 3: The Team Process Report (Appendix 2) needs to be submitted electronically via the link in Blackboard by Thursday 5 May 2016, 7pm. Only one person in the team (the person nominated on the contract) needs to submit these. It is expected that there will one a faceto-face meeting each week from Week 5 to Week 9 (ie. At least 5 face-to-face meetings). A separate team meeting report needs to be completed for each of these meetings. Step 4: The Individual Team Work Reflection (Appendix 3) needs to be submitted electronically via the link in Blackboard by Friday 6 May 2016, 7pm. Each student (individually) must submit this reflection in order to be awarded team marks for this assessment item. 3 AYB321 Mid-Semester Case Study White Lotus, Inc: Planning and Control System White Lotus, Inc., a subsidiary of Black Dragon, was established in 1838 in Boston by Thomas Lotus to design and fashion surgical instruments. The company originally developed surgical instrument kits then went into specialization, working with orthopaedic surgeons and with pioneers in the field of neurosurgery. In 2014, White Lotus supplied hospitals and surgeons worldwide with over 2,700 products for surgery including instruments, equipment, implants, surgical disposables, fiberoptic light sources and cables, surgical head lamps, surgical microscopes, coagulators, and electronic pain control simulators and electrodes. These products involved advanced technologies from the fields of metallurgy, electronics, and optics. White Lotus operated three manufacturing locations in Randolph, New Bedford, and Southbridge, Massachusetts, and a distribution facility in Avon, Massachusetts. The company employed 800 people in the United States. In 1964, White Lotus was acquired by Black Dragon, Inc. as an addition to its professional products business. Black Dragon operated manufacturing subsidiaries in 46 countries, sold its products in most countries of the world, and employed 75,000 people worldwide; its 1985 sales were $6.4 billion with before-tax profits of $900 million. Sonya Blade has been CEO of White Lotus since 1983. She described her job: This is a tough business to manage because it is so complex. We rely heavily on the neurosurgeons for ideas in product generation and for the testing and ultimate acceptance of our products. We have to stay in close contact with the leading neurosurgeons around the world. For example, last week I returned from a tour of the Pacific Rim. During the trip, I visited eight Black Dragon/White Lotus affiliates and 25 neurosurgeons. At the same time, we are forced to push technological innovation to reduce costs. This is a matter of survival. In the past, we concentrated on producing superior quality goods, and the market was willing to pay whatever it took to get the best. But the environment has changed; the shift has been massive. We are trying to adapt to a situation where doctors and hospitals are under severe pressure to be more efficient and costeffective. We compete in 12 major product groups. Since our markets are so competitive, the business is very price sensitive. The only way we can take price is to offer unique products with cost-in-use benefits to the professional user. Since the introduction of the diagnosis related costing by hospitals in 1983, industry volume has been off approximately 20%. We have condensed 14 locations to 4 and have reduced staff levels by over 20%. There have also 4 AYB321 Mid-Semester Case Study been some cuts to R&D, although our goal is to maintain research spending at near double the historical White Lotus level. Kung Lao, vice president of Business Development, recalled the process of establishing a new mission statement at White Lotus: When I arrived here, White Lotus was in the process of defining a more clearly focused mission. Our mission was product oriented, but Black Dragon was oriented by medical speciality. On a matrix, this resulted in missed product opportunities as well as turf problems with other Black Dragon companies. It took several years of hard work to arrive at a new worldwide mission statement oriented to medical specialty, but this process was very useful in obtaining group consensus. Our worldwide mission is now defined in terms of a primary focus in the neuro-spinal surgery business. This turns out to be a large market and allows better positioning of our products. In addition to clarifying our planning, we use the mission statement as a screening device. We look carefully at any new R&D project to see if it fits our mission. The same is true for acquisitions. Reporting Relationships at Black Dragon In 2014, Black Dragon comprised 155 autonomous subsidiaries operating in three health care markets; consumer products, pharmaceutical products, and professional products. Black Dragon was managed on a decentralised basis as described in the following excerpt from the 2014 Annual Report: The Company is organised on the principles of decentralised management and conducts its business through operating subsidiaries which are themselves, for the most part, integral, autonomous operations. Direct responsibility for each company lies with its operating management, headed by the CEO, general manager or managing director who reports directly or through a Company group chairman to a member of the Executive Committee. In line with this policy of decentralisation, each internal subsidiary is, with some exceptions, managed by citizens of the country where it is located. Sonya Blade at White Lotus reported directly to Dana D'Vorah at Black Dragon headquarters in New Brunswick, New Jersey. She is a member of the Executive Committee of Black Dragon, with responsibility for 16 operating companies in addition to White Lotus. The senior policy and decision-making group at Black Dragon was the Executive Committee comprising the chairman, CEO, chief financial officer, vice president of administration, and eight Executive Committee members with responsibilities for 5 AYB321 Mid-Semester Case Study company sectors. The 155 business units of the Company were organised in sectors based primarily on products (e.g., consumer, pharmaceutical, professional) and secondarily on geographic markets. Five and Ten year Plans at Black Dragon Each operating company within Black Dragon was responsible for preparing its own plans and strategies. Kenshi Takahashi, Chairman, believed that this was one of the key elements in their success. \"Our success is due to three basic tenets: a basic belief in decentralised management, a sense of responsibility to our key constituents, and a desire to manage for the long term. We have no corporate strategic planning function nor one strategic plan. Our strategic plan is the sum of the strategic plans of each of our 155 business units.\" Each operating company prepared annually a five and ten year plan. Financial estimates in these plans were limited to only four numbers: estimated unit sales volume, estimated sales revenue, estimated net income, and estimated return on investment. Accompanying these financial estimates was a narrative description on how these targets would be achieved. To ensure that managers were committed to the plan that they developed, Black Dragon required that the planning horizon focus on two years only and remain fixed over a five year period. At White Lotus, work on the annual five and ten year plan commenced each January and took approximately six months to complete. Based on the mission statement, a business plan was developed for each significant segment of the business. For each competitor, the marketing plan included an estimated pro forma income statement (volume, sales, and profit) as well as a one-page narrative description of their strategy. Based on the tentative marketing plan, draft plans were prepared by the other departments including research and development, production, finance, and personnel. The tentative plan was assembled in a binder with sections describing mission, strategies, opportunities and threats, environment, and financial forecasts. This plan was debated, adjusted, and approved over the course of several meetings in May by the White Lotus board of directors, comprising the CEO and seven key subordinates. In June, Dana D'Vorah traveled to Boston to preside over the annual review of the five and ten year plan. White Lotus executives considered this a key meeting that could last up to three days. During the meeting D'Vorah reviewed the plan, aired her concerns, and challenged the White Lotus board on assumptions, strategies, and forecasts. A recurring question during the session was, \"If your new projection for 2020 is below what you predicted last year, how do you intend to make up the shortfall?\" After this meeting, Sonya Blade summarised the plan that had been approved by D'Vorah in a two-page memorandum that she sent directly to Cassie Cage, Chief Executive Officer of Black Dragon. 6 AYB321 Mid-Semester Case Study Based on the two-page \"Cage Letters,\" the five and ten year plans for all operating companies were presented by Executive Committee members and debated and approved at the September meeting of the Executive Committee in New Brunswick. Company CEOs, including Sonya Blade, were often invited to prepare formal presentation. The discussion in these meetings was described by those in attendance as \"very frank,\" \"extremely challenging,\" and \"grilling.\" Financial Planning Financial planning comprised annual budgets (i.e., profit plans) for the upcoming operating year and a second-year forecast. Budgets were detailed financial documents prepared down to the expense centre level for each operating company. The secondyear forecast was in a similar format but contained less detail than the budget for the upcoming year. Revenues and expenses were budgeted by month. Selected balance sheet items, e.g., accounts receivable and inventory, were also budgeted to reflect year-end targets. Profit plan targets were developed on a bottom-up basis by each operating company in reference to two documents: (1) the approved five and ten year plan and (2) the second year forecast prepared the previous year. Kung Lao described the budgeted process at White Lotus, We wrote the initial draft of our 2016 profit plan in June/July of 2015 based on the revision of our five- and ten-year plan. By August, the profit plan is starting to crystallise; we have brought in the support areas such as accounting, quality assurance, R&D, and engineering, to ensure that they \"buy in\" to the new 2016 profit and marketing plans. The first year of the strategic plan is used as a basis for the departments to prepare their own one-year plans for both capital and expense items. The production budget is based on standard costs and nonstandard costs such as development programs and plant consolidations. As for the R&D budget, the project list is always too long, so we are forced to rank the projects. For each project, we look at returns, costs, time expended, sales projections, expected profit, and gross profit percentages as well as support to be supplied to the plants. The individual budgets are then consolidated by the Information and Control Department. We look very carefully at how this budget compares with our previous forecasts. For example, the first consolidation of the 2015 profit plan revealed a $2.4 million profit shortfall against the second-year forecast that was developed in 2013 and updated in June 2014. To reconcile this, it was necessary to put on special budget presentations by each department to remove all slack and ensure that our earlier target could be met if possible. The commitment to this process is very strong. We are paying more and more attention to our second-year forecast since it forces us to re-examine strategic plans. The second-year forecast is also 7 AYB321 Mid-Semester Case Study used as a benchmark for next year's profit plan and, as such, it is used as hindsight to evaluate the forecasting ability and performance of managers. The procedure for approving the annual profit plan and second-year forecast followed closely the procedures described above for the review of the five- and ten-year plans. During the early autumn, Dana D'Vorah reviewed the proposed budget with Sonya Blade and the White Lotus board of directors. Changes in profit commitments from previous forecast and the overall profitability and tactics of the Company were discussed in detail. After all anticipated revenues and expenses were budgeted, a separate contingency expense line item was added to the budget; the amount of the contingency changed from year to year and was negotiated between D'Vorah and Blade based on the perceived uncertainty in a achieving budget targets. In 2015, White Lotus contingency was set at $1.1 million. D'Vorah presented the budget for approval at the November meeting of the Black Dragon Executive Committee. Budget Revisions and Reviews During the year, budget performance was monitored closely. Each week, sales revenue performance figures were sent to Dana D'Vorah. In addition, Sonya Blade sent a monthly management report to D'Vorah that included income statement highlights and a summary of key balance sheet figures and ratios. All information was provided with reference to (1) position last month; (2) position this month; (3) budgeted position. All variances that Black Dragon considered significant were explained in a narrative summary. The accuracy of the budget projections was also monitored during the year and formally revised on three occasions. The first of these occasions occurred at the March meeting of the Executive Committee. Going around the table, each Executive Committee member was asked to update the Committee on their most recent estimates of sales and profits for each operating company for the current year. Dana D'Vorah relied on Sonya Blade to provide this information for D'Vorah's review prior to the March meeting. The \"June Revision\" referred to the revised budget for the current year that was presented to the Executive Committee in June. The preparation of this revised budgeted required managers at White Lotus and all other Black Dragon companies to re-budget in May for the remainder of the fiscal year. This revision involved rechecking all budget estimates starting with the lowest-level expense centre as well as revising the secondyear forecast when necessary. The third review of the budget projections was the \"November update\" which was presented to the Executive Committee at the November meeting concurrently with their consideration of the budget and second-year forecast for the upcoming budget year. The November update focused on results for the 10 months just completed and revised projections for the remaining two months. At White Lotus, preparation of the November update involved performance estimates from all departments but was not conducted to the same level of detail as the June revision. 8 AYB321 Mid-Semester Case Study Corporate View of the Planning and Control Process Kenshi Takahashi, Chairman: The sales and profit forecasts are always optimistic in the five and ten year plans, but this is O.K. We want people to stretch their imagination and think expansively. In these plans we don't anticipate failure; they are a device to open up thinking. There is no penalty for inaccuracies. The profit plan and second year forecasts are used to run the business and evaluate managers on planning, forecasts, and achievements. We ask our managers to always include in their plans an account of how and why their estimates have changed over time. That is why we use the five and ten year planning concept rather than a moving planning horizon. This allows us to revise our thinking over time and allows for retrospective learning. If a manager insists on a course of action and we [the Executive Committee] have misgivings, nine times out of ten we will let him go ahead. If we say, \"No,\" and the answer should have been, \"Yes,\" we say, \"Don't blame us, it was your job to sell us on the idea and you didn't do that.\" Black Dragon is extremely decentralised, but that does not mean that managers are free from challenge as to what they are doing. In the final analysis, managing conflict is what management is all about. Healthy conflict is about what is right, not who is right. Our Company philosophy is to manage for the long term. We do not use short-term bonus plans. Salary and bonus reviews are entirely subjective and qualitative and are intended to reward effort and give special recognition to those who have performed uniquely. The Executive Committee reviews salary recommendations for all managers above a certain salary level, but Company CEO, such as Sonya Blade, have full discretion as to how they remunerate their employees. Dana D'Vorah, Executive Committee member: The planning and controls systems used in Black Dragon provide real benefits. These systems allow us to find problems and run the business. This is true not only for us at Corporate, but also at the operating companies where they are a tremendous tool. Once a year, managers are forced to review their businesses in-depth costs, trends, manufacturing efficiency, marketing plans, and their competitive situation. Programs and action plans result. You have to force busy people to do this. Otherwise, they will be caught up in day-to-day activities - account visits, riding with salesmen, standing on the manufacturing floor. 9 AYB321 Mid-Semester Case Study Our long-term plans are not meant to be a financial forecast; rather, they are meant to be an objective way of setting aspirations. We never make those numbers - who can forecast sales five or ten years out with unforeseen markets, products, and competitors? Even the accuracy of our two-year forecast is bad. The inaccuracy is an indication of how fast our markets are changing. Our businesses are so diverse, with so many competitors, that it is difficult to forecast out two years. I visit at least twice a year with each operating company board. We usually spend the better part of a week going over results, planning issues, strategic plans, and short- and long-term problems. The Executive Committee, to the best of my knowledge, never issues quantitative performance targets before the bottom-up process begins. At the Executive Committee meetings, a lot of argument takes place around strategic planning issues. How fast can we get a business up to higher returns? Are the returns in some businesses too high? Are we moving too fast? However, the outcome is never to go back to the operating company and say we need 8% rather than 6%. The challenge has already taken place between the Executive Committee member and the Company board. If the EC member is satisfied with the answers provided by the board, that's the end of it. It happens very rarely that the consolidated budget is unacceptable. Occasionally, we might say, \"We really could use some more money.\" However, in the second review, this may not turn up any extra. If so, that's O.K. Our systems are not used to punish. They are used to try and find and correct problems. Bonuses are not tied to achieving budget targets. They are subjectively determined, although we use whatever objective indicators are available - for example, sales and new product introductions for a marketing vice president. The key to our whole system is the operating Company CEOs. We are so decentralised that they define their own destiny. A successful Company CEO needs to be able to stand up to press from above. She/he needs to have the courage to say, \"I have spent hours and hours on that forecast and for the long-term health of the Company, we have to spend that budget.\" Clark Raiden, Corporate Controller: At the Executive Committee review meetings, we always review the past five years before starting on the forecast. We look at volume growth rates - sales growth adjusted for inflation - and discuss problems. Then, we compare growth rate against Gross National Product (GNP) growth. We keep currency translation out of it. We evaluate foreign subsidiaries in their own currency and compare growth against country specific GNP. We are looking 10 AYB321 Mid-Semester Case Study at market share by country. On almost any topic, we start with forecast versus past track record. The Committee never dictates or changes proposals - only challenges ideas. If it becomes clear to the individual presenting that the forecast is not good enough, only that person decides whether a revision is necessary. These discussions can be very frank and sometimes acrimonious. The result of the review may be agreement to present a revision at the next meeting, specific action items to be addressed, or personal feedback to CEO. This process cascades down the organisation. Executive Committee members review and challenge the proposals of Company CEOs. Company CEOs review and challenge the proposals of their Vice Presidents. Thursday, 8 May 2015 - 2.00 P.M. As the board members reviewed the document provided to them by Johnny Cage, Vice President of Information and Control at White Lotus, Sonya Blade, CEO, addressed the six people sitting at the conference table: \"This revised forecast leaves us with a big stretch. We are almost two million dollars short of our profit objective for the year. As we discussed last week, we are estimating sales to be $1.1 million above original forecast. This is due in part to the early introduction of the new Chest Drainage Unit. However, three major factors that we didn't face last September will affect our profit plan estimates for the remainder of the year. First, there's the currency issue: our hedging has partially protected us, but the continued rapid deterioration of the dollar has pushed our costs up on European speciality instruments. Although this has improved White Lotus's competitive market position in Europe, those profits accrue to the European company and are not reflected in this forecast. Second, we have an unfavourable mix variance; and finally, we will have to absorb inventory variances due to higher than anticipated start-up costs of our recently combined manufacturing operations\". \"When do we have to take the figures to Corporate?\" asked Kung Lao, Vice President of Business Development. \"Wednesday of next week,\" replied Blade, \"so we have to settle this by Monday. That gives us only tomorrow and the weekend to wrap up the June budget revision. I know that each of you has worked on these estimates, but I think that the next look will be critical to achieving our profit objective. Jacqui, do you have anything you can give us?\" Jacqui Briggs, Vice President of Marketing, shook her head: I've been working with my people looking at price and mix. At the moment, we can't realistically increase the price. Most of the mix variance for the balance of the year will be due to increased sales of products that we are 11 AYB321 Mid-Semester Case Study handling under the new distribution agreement. The mix for the remainder of the year may change, but with 2,700 active products in the catalogue, I don't want to move too far from our original projections. My expenses are cut right to the bone. Further cuts will mean letting staff go. Blade nodded her head in agreement. \"Kung Lao, you and I should meet to review our Research and Development priorities. I know that Dana D'Vorah will want to spend time reviewing the status of our programs. I think we should be sure that we have cut back to reflect our spending to date. I wouldn't be surprised if we could find another $400,000 without jeopardising our long-term programs.\" \"Well,\" she continued, \"it seems our work is cut out for us. The rest of you keep working on this. Excluding R&D, we need at least another $500,000 before we start drawing down our contingency fund. Let's meet here tomorrow at two o'clock and see where we stand.\" Thursday, 8 May 2015 - 8.00 P.M. Following the White Lotus board meeting to discuss the June budget revision on the afternoon of Thursday, May 8, Sonya Blade, Kung Lao, Jacqui Briggs, and Johnny Cage worked into the evening going over the list of active R&D projects. Their review focused on R&D projects that had been included in the original 2015 budget. They searched for projects that could be eliminated due to changed market conditions or deferred to 2016 because of unplanned slowdowns. After discussing the progress and priority of each major project, Sonya Blade asked Kung Lao to have his staff work the next morning to go over the 40 active projects in detail and look for any savings that could be reflected in the June revision of the budget. Friday, 9 May 2015 - 7.45 A.M. In addition to Kung Lao, four people were seated around the table in the small conference room. Jason Voorhees and Kotal Kahn were Program Managers who reported to Bill Ermac, Vice President of Research. Liu Kang was Manager, Technical Development, of the research facility in Southbridge that specialised in microscopes, fiber optic, and light scopes. Kitana Thompson was the Research Accountant representing the Finance department. After coffee was delivered, Kung Lao closed the door and turned to the others: Here's the situation. We are approximately two million short of the June Revision pre-tax profit target. As you know, our sales volume this year has been good - better than budget, in fact - but a few recent unpredictable events, including unfavourable product mix, and that large variance in the cost of specialty European products, are hurting our profit projection. This morning, I want the four of you to look at our original spending projections to see where we stand. For example, we know that R&D underspent $200,000 in the first quarter. Therefore, I think we should take it as a starting point that R&D has $200,000 to give up from its 2015 budget. 12 AYB321 Mid-Semester Case Study I know that you can argue that this is just a timing difference, but you know as well as I do that, given the record of the R&D department, this money will probably not be spent this year. It's time to get the hopes and dreams out of that R&D list. If we roll up our sleeves, we can probably find $400,000 without sacrificing either our 2015 objectives or our long-term growth. We worked late last night looking at the project list and I think it can be done. I have to meet again today at 2:00pm with the board and I want to be able to tell them that we can do it. That leaves it up to you to sift through these projects and find that money. We're looking for projects that have stalled and can be put on hold, and some belt-tightening on ongoing work. After Kung Lao had left the group to its work, Kitana led the group through the list of projects. For each project, the group discussed spending to date, problems with the project, and spending needed for the remainder of the year. For each project, Kitana asked if anything could be cut and occasionally asked for points of clarification. On a separate sheet of paper, she kept track of the cuts to which the R&D managers had agreed. She turned to Project 23 and conversation followed: \"How about 23? You were planning a pilot run of 100 prototypes this year. Should that still be included in the schedule? Yes, the project is on track and looks promising. I supposed we could cut the run to 50 without sacrificing our objective. Would anyone have a problem with that? It's a bad idea. That item has a very high material component and we have a devil of a time getting it at a reasonable price, even for a run of 100. If we cut the volume any more, the unit material cost will double. O.K., we'll stick with 100. How about the salesmen's samples? Is there anything there? If we reduced the number of samples by a third, we could save $20,000. I suppose I could live with that, but I don't know how that will impact the marketing plan. Let me call Jacqui Briggs and see what she thinks\". Kitana kept a running total of the expense reductions as the morning progressed. Kung stopped in approximately once an hour to ask how the work was coming. Friday, 9 May 2015, 2:00 P.M. Sonya Blade opened the meeting: \"Johnny, do you have the revised budget with the changes we've made? What does it look like?\" As Johnny Cage distributed copies of the budget document to the White Lotus board, Kung Lao interjected: 13 AYB321 Mid-Semester Case Study \"Sonya, at the moment, we found $300,000 in R&D. That reflects adjusting our priority list for the rest of the year and cutting the fat out of ongoing projects. As for the last $100,000, we are still working on recasting the numbers to reflect what I call our 'project experience factor'. In other words, I think we can find that $100,000 by recognising that our projects always take longer than originally planned. My people say that we've cut right to the bone on ongoing programs. The next round of cuts will have to be programs themselves, and we know we don't want to do that.\" \"We've discussed this before,\" responded Blade, \"and I think we all agree on the answer. In the past, we have authorised more projects than we can handle and have drawn the work out over too long a time. The way to go is fewer projects, sooner. It's the only thing that makes sense. Our mission is more focused now and should result in fewer projects. It's unfortunate that Bill Ermac is unavailable this week, but we are going to have to go ahead and make those decisions.\" As Johnny briefed the board on the revised budget, Sonya Blade turned to Jacqui Briggs to discuss inventory carrying costs. \"Jacqui, don't you think that our inventory level is too high on some of our low-turnover products? Wouldn't we be better to cut our inventory position and take a higher back-order level? With 2,700 products, does it make sense to carry such a large inventory?\" Jacqui Briggs nodded her head in agreement: \"You're right, of course; our stocking charges are substantial and we could recover part of our shortfall if we could cut those expenses. But our first concern has to be our level of service to customers.\" \"Agreed. But perhaps there is room to provide fast turnaround on a core of critical products and risk back orders on the high-specialty items. The 80/20 rule applies to most of our business. For example, say we offered top service for all our disposables and implants and flagged set-up products for new hospital construction in our catalogues as '90 day delivery' or 'made to order.' We could then concentrate on the fastest possible turnaround for products were that is important and a slower delivery for products that are usually ordered well in advance in any cast.\" \"I think that may be a good tactic. It won't help us for the June revision, but I'll have our market research people look at it and report back next month.\" \"Good,\" responded Blade \"That just leaves our commercial expenses. We need some donations from each of you. What I am suggesting is that each of you go back to your departments and think in terms of giving up 2% of your commercial expenses. If everyone gives 2%, this will give us $500,000. In my opinion, we have to bring the shortfall down to $900,000 before we can draw down part of our contingency fund. We're a long way from the end of the year and it's too early to start drawing down a major portion of the contingency.\" Blade turned to Mileena Marlatt, Vice President of Human Resources. \"Mileena, where do we stand on headcount projects?\" \"The early retirement program is set to clear out Corporate Compensation Department next month. That should yield 14 headcount reductions. Otherwise, no changes have 14 AYB321 Mid-Semester Case Study been made in our projections through the end of the year. I think that we could all benefit from thinking about opportunities to reduce staff and pay overtime on an asneeded basis to compensate.\" Blade summed up the discussion: Well, I think we all know what is needed. Kung, keep working on that last $100,000. All of you should think in terms of giving up 2% on commercial expenses and reducing noncritical headcount. That means that you will have to rank your activities and see what you can lose at the bottom end. Jacqui, I think that we should go back and look at our marketing plan again to see if we can make any changes to boost revenues. We need to take a revised budget to Dana that is short by no more than $250,000. If necessary, I think we can live with drawing down the contingency to make up the difference. So, your work is cut out for you. See you back here on Monday. Have a nice weekend! [laughter all around.] After the meeting, Sonya Blade reflected on what had transpired and her role at Black Dragon: These meetings are very important. We should always be thinking about such issues, but it is tough when you are constantly fighting fires. The Black Dragon system forces us to stop and really look at where we have been and where we are going. We know where the problems are. We face them every day. But these meetings force us to think about how we should respond and to look both the upside and downside of changes in the business. They really get our creative juices flowing. Some of our managers complain. They say that we are planning and budgeting all the time and that every little change means that they have to go back and re-budget the year and the second-year forecasts. There is also some concern that the financial focus may make us less innovative. But we try to manage this business for the long term. We avoid at all costs actions that will hurt us long term. I believe that Dana D'Vorah is in complete agreement on that issue. It is important to understand what decentralised management is all about. It is unequivocal accountability for what you do. And the Black Dragon system provides that very well. 15 AYB321 Mid-Semester Case Study Organisational Chart (Please note for simplicity and ease of understanding positions that are not relevant to the case study have been excluded from the organisational chart) Kenshi Takahashi Chairman Board of Directors Dana D'Vorah Executive Committee Cassie Cage CEO Black Dragon Sonya Blade CEO White Lotus Kung Lao Vice President Business Development Jacqui Briggs Vice President Marketing Johnny Cage Vice President Information and Control Mileena Marlatt Vice President Human Resources Required: Analyse and report on the White Lotus's organisational architecture and budgetary framework by answering the following specific questions: 1. Evaluate the budget system in use. What are its strengths and weaknesses? (This can be answered in a table) 2. Why is it unlikely that managers will try to manipulate their estimates to avoid being committed to tough profit plans in the future? List two reasons. 16 AYB321 Mid-Semester Case Study 3. Do you believe that six (6) months is too long for the budgetary process? Explain your reasons 4. What is the role of the Executive Committee in this process? Do you believe the process is very bottom up or very top down? 5. What role if any, do you believe that the budgetary process plays in achieving (or hindering) innovation? 6. They reward their managers on effort rather than on outcomes. Rewards are subjectively determined by superiors and are not tied in to a predetermined formula. This has several implications for them. For example, Individuals will share information since their personal rewards will not be threatened as might be the case if information was used to increase output targets. Discuss three implications you believe exist. 7. From the information provided in the case, suggest how you would design a reward system for White Lotus to capture maximum benefit from the budget process. How would you deal with relating pay to performance in rapidly changing environment? 17 AYB321 Mid-Semester Case Study Case Study structure: The structure of your case should be as follows: AYB321 Mid-Semester Case Study Question 1 Question 2 Question 3 Question 4 Question 5 Question 6 Question 7 Reference List Please note that an abstract and table of contents are not required. There is no need to rewrite the question simply provide an answer to the question make sure you include reasoning or explanation as to how you arrived at your answer. Word Limit The introduction, conclusion and reference list are not included in your 1500 word limit. 10% either way will be allowed, but anymore will be penalised. Marking Scheme: Please see the criteria sheet for the allocation of marks to each section/criterion. Team Process: At the initial meeting it should be decided who has the responsibility of submitting each piece of the assessment Team Contract: The team contract needs to be discussed at your initial meeting. The contract template can be found in Appendix 1 and must be completed by the group. This contract is due electronically via blackboard on Thursday 14 April 2016, 7pm. Only 1 contract per team needs to be submitted. Team Process Report: It is required that your team will meet at least once a week, face-toface to undertake the assignment (from Week 5 and Week 9), ie. 5 face-to-face meetings. A 18 AYB321 Mid-Semester Case Study separate report for each meeting needs to be submitted, so please ensure you are diligent in recording all meetings. The report template can be found in Appendix 2. You will need to duplicate it for each meeting. This report is due electronically via blackboard on Thursday 5 May 2016, 7pm. 19 AYB321 Mid-Semester Case Study AYB321 Strategic Management Accounting: Criteria Sheet, Mid-Semester Case Study - Semester 1, 2016 Student Name & Number: ________________________________________________________________________________________ Criteria 7 Higher order thinking (HO 2.2) Ability to critically analyse a range of strategies and processes Professional Communication (PC 3.1) Ability to describe, articulate reasons and develop processes in written form The student has demonstrated a high level ability to critically analyse the case. The student has demonstrated a great level ability to critically analyse the case. The student has shown a very strong ability to describe the budget and organisational architecture, and articulate their reasons for their answers. Acted flexibly and appropriately throughout the process, in concert with other team members; adhered to the team Contract conditions. Contribution showed insight into team factors and processes and ability to influence team dynamic in positive ways to achieve final output. The students has shown a strong ability to describe the budget and organisational architecture, and articulate their reasons for their answers. Acted flexibly and appropriately throughout the process, in concert with other team members; adhered to the team Contract conditions. Contribution showed some insight into team factors and processes, and some evidence of influencing team dynamic in positive ways to achieve final output. Teamwork (TS4.2) Act flexibly and appropriately in team situations; show insight into team factors and processes and influence team dynamics in positive ways to achieve outputs COMMENTS and TOTAL MARKS 6 5 4