Management accounting refers to locating the cost of performing a managerial function in an organization, identifying revenues and cost centers, and assigning responsibilities accordingly. With the current global credit crunch, most organizations have been financially compelled to cut their operational as well as fixed costs in order to match the existing business trend. This exerts a lot of pressure on many businesses either small or medium-sized to devise efficient and prudent accounting techniques to use in business management (Business and Finance 2009).
This leaves management accounting to be a very significant technique especially in organizations whose structures are complex and are operating in very dynamic environments. Handling tremendous and complicated transactions involving different personalities of diverse cultural and academic backgrounds requires that extraordinary steps are taken to ensure that no compromises are made to avoid any situation of conflicting interest that may be the victim of the moment in an organizational setup. (Alexander 2000).
In fact to ensure that this happens, the organization should have all the machineries in place including financial, technical and operational mechanisms in the organization so that adequate procedures are put in place in accordance with the objectives of the organization. In this scenario we see Pro-Tech an organization that is aggressive and expansion oriented implicating itself into a management crisis (Scribd 2009).
Regarding the industry position this company is doing extremely well despite intense competition from its rivals, it has managed to maintain the lead until recently when its profitability has began to fluctuate raising eyebrows from its core stake holders including suppliers, institutional shareholders and employees. The staffs are already questioning their relationship with the organization’s top cost accountant and are actually not happy with his costing techniques; a major strike is also looming in this organization. Employees are not going down well with the leaflets that were issued to them suggesting a major wage reduction of $10 and so many issues (Alexander 2000).
This confirms to us that despite the fact that the company has good plans for the future, all is actually not well. I take this opportunity to write this report to the manager so that he can decide on what to do about the content of this report. Remember that this report tabled below tries to analyze some of the vexing issues in Pro-Tech that require agent and serious consideration in order to salvage the situation (Alexander 2000).
The management report about Pro-Tech
The leadership style adopted by the management in this particular organization is seriously in doubt. Barker has taken on hands on approach to the running of organization. The study further shows that the relationship between Barker and the finance director Ms Adebola is sour, they feel that their individuality and freedom to make important organizational decisions is impaired (Scribd 2009).
This matter has grown to the extent of shareholder attention. This represents a typical rigid and bureaucratic organizational structure that is normally associated with one way communication. In the current business environment organizations need to adopt flexible organizational designs that can allow the firm and its stakeholders to adjust to suit the circumstances changing moments. In this particular organization managers are under pressure and their ability to decide on important organizational matters has actually been overridden by one single manger Barker. Employees work to their maximum when they feel that they are free and that nobody is after them.
It is therefore the responsibility of the manger to decide on whether Barker should continue frustrating their fellow employees or to ensure that he is taken for further training (Alexander 2000).
This behavior is also a hindrance to innovation. Remember that high performance organization do so because they practice a culture of allowing people to play multiple roles to identify new talents in different fields and where possible improve those talents by taking the talented individuals for more training. But in Pro-Tech the decision is made by one single man who poses to assume everything, this derive young employees the opportunity to display their talents. If this continues in the organization then the future performance will be a going concern (Morrison’s solicitors 2009).
The Pro-Tech seems like a big organization from the study, big organizations are characterized by large number of employees. Without these employees the company objectives can never be achieved. Employee’s welfare should be given a first priority in what ever organization decides to do, be it cost cutting, restructuring, or any new policy adopted. In this organization we see a ruthless cost accounting manager who has devised his costing techniques that has left employees in conflict (Morrison’s solicitors 2009).
The recent announcement that there is going to be a wage reduction by $ 10 has not augured well with employees. In normal situation if the company perceives that it is likely to reduce the staff salaries in the near future this should be communicated formally using the best means possible. The manager should have summoned a staff prior to giving a salary reduction notices to explain the potentially complex issues and the reason behind that decision and whether it is in accordance with the company’s professional code of ethics (Alexander 2000).
Employees are already planning a major strike that is likely to affect the operations of the company. In order to avert this strike salary issues must be addressed thoroughly. The company is also suffering from high stuff turn-over in fact the highest in the industry; this further reveals that there are no proper procedures in place to address the employee’s welfare. Mangers are forced to work for long hours and days in a week i.e. 6 or 7 days a week (Morrison’s solicitors 2009).
In big organizations staff morale is always a key factor in determining whether the organization is committed to achieving its end result. A highly motivated staff will actively work for long hours even without supervision but as in the case of Pro-Tech staffs are just working to complete the assigned duties and responsibility. In this case the organization may not be able to meet its target and hence a doom (Scribd 2009).
Conflicts in organizations are obvious however the role of the management is to identify the possible sources of conflicts. There are types of conflict that are healthy and may not compromise the achievement of strategic objectives of the organization and therefore regarded as normal especially in rapidly growing firms but in Pro-Tech there are three different types of conflicts, company to shareholders, company to employees and finally company to suppliers. Much this type conflict in an organization becomes very critical to the performance of core organizational functions (Morrison’s solicitors 2009).
Under the principle of agency shareholders are the owners of the company, since they may not have the necessary experience and qualifications to run the company affairs, they employ directors to manage the company on their behalf. Any action taken by the directors is viewed in the wider spectrum as the company’s. These directors work on pay. But before they are paid their main responsibility is to ensure that shareholders wealth is maximized. Shareholders usually have their required rate of return on capital that must be met (Scribd 2009).
In Pro-Tech the vice-versa is true, shareholders are already questioning the marketing technique of the newly appointed marketing manager. They have been angered by the declining nature of company’s profitability implying that their required rate of return on capital is not being met. This places them on a very precarious position; they are actually not safe and are likely to lose further if this performance continues for the foreseeable future. This is a major source of conflict in big organizations (Morrison’s solicitors 2009).
Pro-Tech suppliers hold a thought that with the increasing overhead costs and the declining profitability of the company, it is highly likely that the company may not be able to pay their dues as they arise. This further complicates matters for Pro-Tech. if potential suppliers decide to withdraw their support i.e. making steady supply to the firm, the future can be oblique. This can give competitors a breathing moment and in a matter of time things can never be the same again. This means that the manager should spend a lot of time building relationships with its potential suppliers and where there gaps steps are taken to rectify before the matters go out of hand.. (Morrison’s solicitors 2009)
The conflict between the employees and the organization a rises as a result of the inability of the management to use proper approach in dealing with employees welfare i.e. working for long hours with no appropriate consideration, reduction of salaries without an explanation, rigid structures and the company’s cost accounting systems. If staffs perceive that their needs are met they will never have a reason of complaining and things will be okay (Alexander 2000).
Human resources manage net department
It is justified to assert that Pro-Tech does not have a properly functioning human resource department. The responsibility of any such department in an organization is to guide the organization in inculcating professionalism as a culture. The boss of this department is likely he is unaware of his duties (Morrison’s solicitors 2009).
This exhibits itself in the study when employees posted to different posts do not seem to uphold the spirit of professionalism, starting from the newly employed marketing manager to the cost accounting manager. These employees lack adequate, technical, relevant, experience and qualifications to hold those positions in the company. This is a big organization that should be able to adopt proper and adequate recruitment procedures credible enough to provide confidence and transparency (Alexander 2000).
It is the responsibility of the human resource department to determine the caliber of employees joining the company. If this department is ineffective in the first place then it is highly likely that the company can not achieve its objective of being innovative. It is recommended that for any valid and fair recruitment to take place there should be proper machinery starting with the boss him/herself. Most high performance organizations tighten recruitment processes by putting vigorous and rigorous conditions to ensure that only qualified candidates join the company. Finally as i end this report the responsibility remains for Mr. Groening the company’s top manager to either act or watch the company sinking in to the mire of liquidation (Scribd 2009).
Pro-Tech current accounting
The current cost accounting as adopted by the firm has led to war in the first place. Employees and other staffs are not able to understand it. Even the cost accountant seems to be confused when applying it. The duty of cost accountant is to apportion overheads from all the cost centers. This system can provide an inaccurate result as identifying cost centers that may be difficult especially in service organizations. It can also lead to overheads accruing to a given department even without directly being involved in a process or activity (Alexander 2000).
This costing system can make the management to unfairly judge the performance of a department by apportioning un proportionate overheads. At times it can also lead to the management making incorrect decision as to the total cost of producing a specific product. The advantage of it is that its simple to use and it also ensures that cost is allocated to every time and department in an organization. (Scribd 2009)
It can act as a guide to the management to implement a tight cost leadership approach in the organization. However the benefits of Activity Based Costing can also not be forgotten. This technique concentrates on activity areas, such that the more activity is attributable to a department the more it attracts overheads. This technique can not be applied in Pro-Tech as it is most desirable in a service center organization.
Cost accountant and the looming strike
It is right to say that the looming strike is caused by the cost accountant. This is because employs have been angered by the 10% pay cut, a matter that even the production managers do not agree with. In fact employees do not understand how the increase in overheads has been arrived at. Even if the pay cut was normal it could have been communicated to them. It appears that the cost accountant is serving the interest of Barker who seems to be his close confidante (Morrison’s solicitors 2009).
The question that every body is asking is that how come the pay cut is only known by two people in this organization?
One can confidently believe that there is a coalition between the two prominent persons either gain unfair advantage over other staff members. It’s therefore apparent that the strike is caused by the cost accountant. In order to avert this strike the management has two options, either to review the accounting technique to determine whether it is in line with the company’s procedures or to compromise the organizations costing procedures to compensate the employees for the proposed pay cut. This will have averted the looming strike (Scribd 2009).
An organization must ensure that the actions it takes including its internal practices do not cause conflicts. If a decision is expected to warrant a conflict then it should be communicated prior so that every body becomes aware including the shareholders. In the Pro-Tech we could say that it was a change of accounting practice that has caused wars with all the stakeholders including suppliers. In my own view all these claims should be supported by an audit to validate them. An audit will also look into the reasons which led the company into changing its costing technique and whether the relationship between the cost accountants and the manager Barker is normal. From the study it appears to be abnormal.
- Business and Finance 2009. What is the meaning of “cost” in cost Accounting Terminology. Web.
- Alexander, et al 2000. A unifying approach to performance analysis in the Java environment.
- Morrison’s solicitors 2009. Redundancy special.
- Scribd 2009. Workers participation in management. Web.