Managerial Accounting: Timothy’s Fine Tobaccos Case Study

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Timothy’s Fine Tobaccos is a tobacco business that has been in operation since 2003. This business was started by Tim Socier as a part-time activity to provide humidors in restaurants, golf courses, party stores and other local establishments. Socier is the sole proprietor of this business and, therefore, controls all its managerial issues. Although Tim runs this tobacco business, he is a mechanical engineer by profession, having practiced this profession for more than eighteen years. He also runs a website for the business (Biskup & Reisinger, 2007).

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This website, www.timothyfinecigars.com, is mainly used for taking the business a step closer to its clients. It offers a one-stop solution to clients of the business by serving various purposes such as instant customer service, business information and career opportunities amongst others. After achieving success during the beginning year of his operation, Tim decided to move the business to another location in 2006 where he enjoyed a 200 percent increase in sales and massive flow of profits.

As business grew much more during the following year, Tim had to employ two people to help him operate the business. These were his daughter and his friend. The choice of these employees was perfect for his business since he can count on the loyalty of the employees and dedication to make the business grow even further. Therefore, the good relationship between Tim and his employees has been an important component to the continued success of the business.

For the customers, Tim has ensured that he satisfies their needs whenever they visit his premises. He has achieved this by stocking more than 250 types of pipe tobacco and cigars and other fifty different cigar accessories and accompaniments such as lighter, humidors and cutters. The display of items in his business is one sure to capture the attention of customers. This includes a well-crafted display of humidor cases along the walls, and a cigar lounge that would be the envy of every cigar lover.

The lounge, located upstairs, has leather chairs, tables and a flat-screen television. In order to retain these customers, however, Tim offers them great value for money. He does this by offering competitive prices, giving discounts to the customers and running monthly special clearance offers. His definition of customer service is one that focuses on making the customer feel like royalty by offering great prices for premium products, and offering a comfortable place for the customer to enjoy the product.

Tim’s business, just like any other cigar business, is faced by health issues. According to American Lung Association reports, people who smoke at least three pieces of cigars a day have increased chances of dying of lung cancer than cigarette smokers and nonsmokers since a single cigar and a pack of cigarettes has the same amount of tobacco. Therefore, smoking only a few of these cigars can expose one to the same level of nicotine as a person who smokes a pack of cigarettes. According to the report, nicotine absorption by the body can still occur by holding an unlit cigar in the mouth.

Tim’s company is facing several issues. First, Tim has moved the location of his business two times in the past. Although this has paid off with getting room for expansion of the business, it has inconvenienced most of his customers who would probably not be okay with the new location of the business. Moving a company from one location to another is a great disappointment to loyal customers, and they are inconvenienced by such a move (Biskup & Reisinger, 2007).

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Although he has been giving his customers “The Good Life”, Tim is yet to see the success of his business pay off. For every time that he had to change his business location, he had to plough back his profits to see his business catch up again. A seasonal slowdown that occurred in February of 2007 also caused a lag in business. This was a major setback considering that it was the same year that he had moved to his current location, in the business district of Bay City, Michigan. Having seen the effect that a change of business location had on the business and his family, Tim is not decided whether to consider moving to another location in the future. The necessity to change his business location is caused by the need to operate in a larger location and serve a higher market demand and potential customer base (Biskup & Reisinger, 2007).

Therefore, Tim is faced with the option of moving his business premises to a larger location that would allow him to expand his business. Otherwise, he would have to maintain his current location, which is convenient to his home, family and current customers. A move to another location would also be risky to his financial future since he will have to forfeit his profits and invest his savings to set up a new premise that would not be guaranteed to succeed, albeit immediately. Although his current location has other similar business establishments, Tim does not consider them stiff competition.

The Stables, for example, is located just across the river. Although The Stables offers a festive environment for cigar lovers, the prices are high, the variety of cigars is small, and the employees are illiterate about cigar issues. All the other competitor establishments have these or similar problems hence making Tim’s business the leading operator of cigars in the area.

Concepts of managerial accounting such as strategic management can help the management of this company to solve the issues and options that it faces. According to principles of strategic management, an accountant should perform an assessment of competition within the industry in which the business operates. In this case, Tim’s business is located in a place where it is the leading operator with other competitor establishments not providing much competition. This is good for Tim’s business since he cannot lose customers to the other competing businesses. Therefore, the business is currently located in an ideal place and the volume of sales has increased by significant margins since moving to this location (Biskup & Reisinger, 2007).

Most business decisions involve risk. There is, therefore, the need to consider and make the best decision that involves minimum risk. The risk management concept of managerial accounting would consider an assessment of the risks involved within the business and its day-to-day operation. The options that this business is faced with may need risk assessments in order to make the best managerial decisions. Staying at the current location would mean that that the business has limited room for expansion (Crosson & Needles, 2011).

With the increasing customer base, Tim may not be able to meet all his customers’ demands in the current location. Therefore, there is the risk of losing customers to other competing businesses in the area and hence limiting his profits. There is also the risk of business stagnation where the business would not be able to grow within the limited space. This assessment of the risks involved in all the options and issues that the company faces would help the management in making a decision about how to solve these issues and exploit the options.

Considering that Tim has moved the location of his business before, he is a risk taker for facing the financial and other risks involved in moving the location of a business. Therefore, it would be a wise managerial decision to consider moving the business to a larger location, where it can accommodate more customers. The risk of staying in the current location and losing on larger business opportunities is larger than the risk involved in forgoing profits to setup new premises. Moving to a larger location would ensure an increase in customer base, sales and profits. Hence, Tim should consider shouldering the inconvenience of moving his home and family for benefit of achieving business success (Balakrishnan, Sivaramakrishnan & Sprinkle, 2008).

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Several managerial accounting tools would be useful for the management of this business. The consideration of these would help in managerial decision making where the management of the business would make a wise and informed decision about the issues and options that face the business. One of them is revenue, which is the volume of sales. With the current location of the business, there is limited revenue growth because the business cannot meet customer demand. This is because of the limited room for expansion, where increase in demand cannot be matched with increase in supply.

Profit has the same effect as revenue and can thus be limited for lack of growth in the business. A lager location would give Tim the opportunity to expand his business establishment and be able to serve a lot more customers. This would translate to increase in both revenue and profit. Moving to a new location would also have an effect on volume. This is the level of activity, which in this case can be expressed as the predicted level of sales. This factor would increase once the business operates in a larger location. Volume is affected by the level of demand and, therefore, the management should address this factor since there is increasing demand for the services offered.

For the management of employees, several managerial accounting tools can be relevantly used. One of them would be the provision of timely accounting information. Timely information is important in making managerial decisions because it provides up-to-date information useful for provision of efficient and effective services (Hansen, Mowen & Hansen, 2006).

The employees would therefore be needed to record business transactions as they occur and hence give the right picture about the levels of demand. Another relevant managerial accounting tool that would be appropriate for the employees is reliability. When employees provide reliable information, the management uses this information to make accurate assessments about the financial performance of the business. This is an important tool for management accountants since it is used in decision making for the best outcomes in a company. These tools may be implemented by employee training and career workshops where the employees would be sensitized on the need to keep up with the demands of these and other managerial accounting tools (Jiambalvo, 2009).

References

Balakrishnan, R., Sivaramakrishnan, K., & Sprinkle, G. (2008). Managerial accounting: Models for decision-making. Hoboken, N.J: Wiley.

Biskup, M. & Reisinger, C. (2007). The Good Life. Business Case Journal.

Crosson, S. V., & Needles, B. E. (2011). Managerial accounting. Mason, OH: South-Western Cengage Learning.

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Hansen, D. R., Mowen, M. M., & Hansen, D. R. (2006). Managerial accounting. Mason, OH: Thomson/South-Western.

Jiambalvo, J. (2009). Managerial accounting. Hoboken, N.J: Wiley.

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