The main operation of the company is in Canada and is in total is into the retail business. The management of every company shall work in the defined and effective manner so that the maximum output shall come with the minimum utilization of resources. This shall prevail not only in the quantitative terms but also in the qualitative terms. In the given case of Tenor Manufacturing Limited, the company is engaged in the business of trading of the paddleboards. The company has the defined system of treatment of each and every item of the business whether it is related to the quantity of certain material or it is related to the treatment of the particular expense or income and its recognition policy. Each of the item has the great relevance in the report as it has laid down the great analysis of the current treatment of the company along with the proposals that the company for the subsequent fiscal year. In the first phase, the alternatives that has been provided by the management has been detailed along with the suggestions of the report writers and in the second phase the importance of the system of budgeting along with the balance score card has been detailed as to how it has benefited the management of the company in taking useful decision and at the last the report has been ended up with the conclusion and the recommendations thereon.
Analysis of Available Alternatives
In the given case, the company’s management needs the evaluation of the two alternatives. One alternative states the increase of the selling price by $15 per unit and decrease of the credit period which is extended to the customers. Second alternative is to follow the method of quasi Just in Time inventory. It means that the inventory will be kept at the minimum and as and when the need arises the company will buy the product from the market.
In the first alternative, the sale has been increased from $5321000 to $5540883. But this increase as per the market scenario will be for short term. It is because the company has increased the price by $15 per unit and simultaneously decreased the credit period which will provide gains to the company in the short term but in the long run the company will not be able to function. It is because of the major reason that the consumers are rational and their behavior or the pattern depends upon the changing scenarios. In the budgeted figures it may be shown that the company will be benefited but in actual the company will not be benefited.
Now under the second alternative the management has decided to decrease the inventory levels which are against the basic premise of the strategy of the company. It is because the raw material that the company is using is very expensive and to have the inventory of those items in lump sum or in haste will be difficult for the company. Even then the company has decided to reduce the inventory level.
As per the prudence and normal rational behavior of every individual and entity, the company shall at the first introduce the system of timely follow up of the payments from the account receivables and shall not increase the price immediately. It is because in starting phase the management has decided that the sales will be decreased by 3% but in actual it may get decreased by 50%. Similarly, in the second alternative, the company’s management shall take appropriate decision for maintaining the minimum required inventory for raw material (Ryan and Robert, 2002).
Budgeting and Balance Scorecard
Budgeting and the Balance scorecard are regarded as the best cost management techniques. Both of the techniques have different features, different perspectives and comes up with the different facts and figures in terms of the ratios or in terms of analysis. Both of the techniques are prevalent in the market and each and every company is following the techniques in the letter and spirit (Atrill, Peter and Eddie, 2012).
As per common parlance, budgeting is the process of preparing the budget. Budget usually plays very crucial part in the success of the business of the company. It facilitates the comparison between the It persuades each and every manager of the company as well as the persons who have been charged with the corporate governance of the company to be ready for all the events that may happen in the near future (Collis and Hussey, 2009). Each and every business maintains and prepares different types of budgets like production budget, sale budget, purchase budget and cash budget, etc. All these budgets are linked to one form of budget which is known by the name of Master Budget. Master budget comprises of all the forms of budget and lays down the plan for all the activities of the company in total. All the budget which is required to be made for the specific purpose like purchase budget or sales budget forms the part of the master budget only. The main advantage of the preparation of budget is that the company can have an idea as to how the activity is required to be performed and what type of measures can be undertaken so as to bridge the gap between the actual results as well as the budgeted results. For instance if the company’s budgeted results or the desired results is that the production budget shall be at the minimum and the company will work accordingly in order to achieve the desired results. There is one important concept of zero based budgeting which is widely used by the companies across the world. It enables the company to consider the base year as zero and instead start the budgeting process at the fresh. Thus in this way the budgeting is the important factor for success of every business (Drury, 2006).
Secondly, the other management technique is the balance score card. Although the balance scorecard has been developed past many years but it has gained importance at its fast due to the very fact that the balance scorecard helps the company’s management to translate their objectives and the vision into the set of performance measures which help them to correlate or assess the performance of the company at regular intervals in respect of the decided measures. Balance scorecard consists of four major perspectives – Financial, Customer, Internal business process and Learning and Growth. Each of the perspective delivers different values to the company (Kaplan, Robert and Norton, David ,2004). Financial perspective is basically embedded for meeting out the needs of the shareholders and other stakeholders like rate of return on capital employed, earning per share, etc. Customer perspective deals with the customer satisfaction and attraction. Internal business processes helps the company to measure the viability of the processes between the stage when the customer needs are identified and when the customer needs are satisfied. Last perspective deals with the measures to evaluate the long term growth of the company (Niven and Paul, 2002).
Thus, in this manner, the two techniques are very much essential for the company to survive in the dynamic business environment.
Tenor manufacturing limited has been adopting the earlier system of cost management and has not come up with the changing requirements of the business. The techniques and the method of the cost management have been totally changed in current scenario. The report has described the various instances where the method that the company is following is the earlier one and is irrelevant in the current scenario and which can result in the decrease in the market price of the company. Secondly the report has provided the features of the new technique balance score card along with the importance of budgeting. To conclude the report, it has come up with the new figures and facts and accordingly the company shall modify its system and shall introduce the Balance score card and the Budgeting as the core part of the management reporting.
Atrill, Peter & McLaney, Eddie, (2012), “Management Accounting for Decision Makers”, Pearson Education Limited, Harlow.
Collis and Hussey, (2009), “Business Research: A Practical Guide for Undergraduate and Postgraduate Students”, Palgrave Macmillan, Hong Kong,
Drury C, (2006), “Cost and Management Accounting”, Thomson Learning, London.
Kaplan, Robert. S & Norton, David. P, (2004), “Strategy maps: converting intangible assets into tangible outcomes”, Harvard Business School, Massachusetts.
Niven, Paul. R, (2002), “Balance Scorecard Step by Step: Maximizing performance and maintaining results”, John Wiley & Sons, Inc., New York,
Ryan and Robert. W, (2002), “Research Method & Methodology in Finance & Accounting”, Thomson Learning, London.