Accounting and Organizational Behaviour

    Those falling under total cost represent the total of total variable cost and total fixed cost.  Not all variable costs have their variable cost per mile since variability need not vary with the miles travelled but on other factors.  Not all cost therefore will have their total cost per mile since not all cost could be related on a per mile basis

Comment briefly on the statement “The more miles you travel, the cheaper it becomes”

      This statement is generally true if the share of fixed cost to total cost is high. However, if variable cost is high; the statement is false because variable costs increase as number of miles travelled is increased.

            Since there was projected reduction in the tour price while every cost item is projected to increase in 2008, there resulting projected 2008 net profit as reflected in 2008 budget is lower compared with the 2007.

    The budget allowance for 70,000 level of output would appear as shown between 50% and 80% below:

    Exercising tight control over how branches operate in the manner done by the Finance Director may fail to accomplish its intended objectives because it is not in accordance with principles of good budgeting management principles and organizational behaviour. Since fixed budgets are set at very demanding levels with targets being increased each year, it is expected that managers would have to be answerable for things that they could have not control whatsoever. Good budgeting theory requires goal congruence with what is expected from managers and what things could actually be made their responsibilities.

    Case facts further provides that although the Finance Directors does privately does believe that many managers will not meet the tight budget, the same director will send a stern letter to any manager failing to meet monthly target, with a copy to the manager’s superior where the failing manager is made to explain.  This practice of the company is obviously outside the good practice of the use of budgeting. This is an inhuman treatment to managers that could cause a high turnover on the employment of these managers.  High employment turnover is not good for business since it is costly.

     To make the budgetary control system effective (Johnson and Scholes, 1993; Weston and Brigham, 1993; Meigs and Meigs, 1995) is to have the managers take part in the preparation in the preparation of the budget. Each manager must be made part and must agree on their cost responsibilities where they could have control so that they could be held responsible. In the case the department is a revenue centre, like a marketing department, the manager must also take part in estimating the expected number of units to be sold or services to be rendered under a competitive so that manager could be expected to produce outputs based on what could be attainable.  Cost should be broken into variable or controllable from fixed or uncontrollable for purpose of assigning responsibilities to managers (Balakrishnan, et. al, 2004: Paulsen and John, 2002; St. John, et. al, 2005; Cebenoyan, et. al, 1998; Chrisman, et. al,  2004)

   How Benchmarking and Balance Scoreboard could be of use to Beam Ltd.? 

      Benchmarking is used to evaluate how the company is performing in relation to other companies in the industry where comparison could have some basis (Berry, et al., 1995; Drury, 2001a ; Drury, 2001b, Emmanuel, et al., 1990). Normally what are used as benchmarks should be those companies that are doing well industry and whose time is more or less similar or at least closely resembling that of the company’s size and condition.   To illustrate, assuming Beam Ltd has similar amount or level of assets with that of the competitors, the revenues and profits (Bernstein, 1993; Brigham and Houston, 2002; Byars, L.,1991; Droms, 1990; Helfert, 1994) of the two companies could be compared. If the competitor would be having more revenues and higher profits than the company an understanding of the underlying reason must be investigated so that company could find what are its untapped strengths and opportunities.  If on the other hand the Beam is performing better, the company should be able to sustain such status as it is possible that company is having a competitive advantage that must be protected for long term profitability.

       Balance Scoreboard is used to put measures on important organizational activities as a way of controlling and influencing performance in the organization (Emmanuel, et al., 1996; Hislop, 2005; Horngren, et al, 2005). It is said that what is measured can be managed. By the same principle, it would mean that management must know how it is doing in terms of the overall and departmental objectives so that it could make adjustments or corrections if there is need to do so.  Balance scoreboard is in effect linking performance of managers to corporate objectives and the same could be a way to motivate these employees in the attainment of corporate objective. The concept is also closely related to benchmarking since performance is a requirement from both concepts.  Management could therefore combine the two concepts in designing programs for the company.

      As a management accountant, I can help the company to achieve competitive advantage ( Lenway and Murtha,2004; Sisaye, 2005; Annerstedt, 2003; Fahy,1996; Mcwilliams, et. al, 2001)  by providing the accurate and relevant accounting information to help management to effectively implement benchmarking and balance scoreboard concepts for Beam Ltd.

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