Saul Fixture Inc. manufactures windows and related products. It has three divisions: windows, glasshouses and conservatories. The overheads in the business are high and primarily relate to procurement, customer administration and product design. Procurement and customer administration overheads relate to all of Saul Fixture Inc.’s product groups. Design overheads currently relate to only two product groups, glasshouses and conservatories. Saul Fixture Inc.’s current costing system has been in use for a long time and absorbs overheads into product costs on a direct labor hour’s basis.

Saul Fixture Inc. has been manufacturing UPVC windows and glasshouses for many years. More recently, Saul Fixture began manufacturing conservatories. Conservatories are structures made mainly of glass, which are attached to the side of residential houses. They form an additional room in a house. These conservatories are expensive and are made to measure for individual customers’ houses. There are a wide range of finishes and options available to choose from. The procurement department spends a lot of time sourcing special materials and finishes requested by customers.

The budget setting process has remained unchanged since Saul Fixture was formed. All managers prepare draft budgets using spreadsheets and submit them to the Saul Fixture CEO for approval. Managers use the previous year results as a starting point when drafting the budgets and increase the variable costs in line with any anticipated growth in volumes. Managers are appraised on their performance against the approved budgets.

Saul Fixture has needed all its financial resources to fund its expansion and so it has only old and basic IT systems. The current information systems of the company are based around the functional departments of the business such as manufacturing, marketing, finance and logistics.

These current systems only handle quantitative data.

The CEO is concerned by a recent fall in overall net profit margin despite modest revenue growth and good control of direct costs. Table 1 below list the contribution of three products.

Table 1

Contribution by product type for the year ended 30 June 2025

                                   

Product type    No. of direct labor hours         No. of units sold         Total contribution ($’000)

Windows                     1,200,000                                175,000                                   9,800

Glasshouses                79,000                                     3,800                                       969

Conservatories            25,000                                     650                                          910

Assess the impact of the above proposed three improvement projects on new information system, recommend three tools or practices to improve the company’s performance, discuss the potential issues with the current budgeting system at Saul Fixture, and evaluate the performance of the three divisions.