Required:

1. Critically discuss why the current system is unsuitable for Just Juice. Your discussion should include, among other things, issues of ethics and goal congruence that is a concern of the company at the moment. Your analysis should also consider the structures of the different divisions.

Just Juice Company processes different fruits into juices. The head office of this company is in Abu Dhabi. Three of its processing plants are Just Mango, Just Orange and Just Mix (which produces a blend of various fruits). Just Mix is expected to manage its investments and make a profit. This division is enabled to make all procurement and investment decisions without requiring the approval of head office. Just Mango is expected to make fruit concentrate to supply to Just Mix and the outside market and may or not make a profit. Just Orange processes fruit into concentrate for Just Mix and the outside market, but can also process oranges into juice, if its managers think this is profitable.

The following are the budgetary responsibility reports for each of the three departments:

Currently, the three divisions performance is based on static budget variance analysis. Divisions with a favorable operating income variance are rewarded with a bonus of 20% on the operating income while those with an unfavorable operating income variance are given a warning.

This system of performance management has caused a lot of disquiet over the years. You have therefore recently been hired as a consultant to assist the company to develop the best system for the company that would ensure that division managers goals are congruent with those of the company.

Just Mango 7,500 $1,750,000 Just Orange | Just Mix 4,000 2,000 $1,400,000 $1,200,000 Sales (units) Sales ($) Direct manufacturing costs Direct materials Direct labour 90,000 62,000 80,000 40,000 10,000 12,000 Manufacturing overhead Variable manufacturing overhead Rent Insurance Depreciation 80,000 50,000 5,000 75,000 30,000 30,000 2,000 100,000 6,000 10,000 1,000 40,000 Marketing and general administration expenses Advertising Sales salaries Printing Travel 100,000 75,000 10,000 20,000 30,000 15,000 20,000 30,000 5,000 3,000 5,000 2,000 Investment in assets 1,000,000 1,200,000 | 800,000 The actual responsibility reports for each of the three departments are provided below: Just Mango 7,000 $1,740,000 Just Orange 4,500 $1,460,000 Sales (units) Sales ($) Just Mix 3,000 $1,210,000 Direct manufacturing costs Direct materials L 95,000 55,000 12,000 Direct labour | 60,000| 48,000 10,000 Manufacturing overhead Variable manufacturing overhead Rent Insurance Depreciation 40,000 40,000 5,000 80,000 35,000 50,000 2,000 90,000 6,000 12,300 1,000 56,000 Non- manufacturing overhead Advertising Sales salaries Printing Travel 100,000 75,000 10,000 14,000 30,000 15,000 20,000 21,000 5,000 3,000 5,000 1,500 Investment in assets 1,000,000 1,200,000 800,000