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FORD COMPANY AND THE VALUE OF EFFECTIVE ACCOUNTING STRATEGIES

Executive Summary

A.The Ford Automotive Company is an American Multinational Enterprise (MNE) based in Dearborn. social and economic systems. With the ever-changing economics of business. In Chapter 15 of Managerial Accounting by Braun and Tietz. Michigan. The central objective of this report aims to identify how these activities are organized and accomplished through their cost accounting strategies. Latin America and Asia Pacific. In the automobile industry the effects of using strategic innovative ideas and advanced technology is a major contributor to the fierce competition experienced with rivals. Moreover. 886). the going concern assumption aligns with the importance of implementing a sustainability strategy as part of the overall business strategy of a business. and planet (Braun 886). but recognizes three interrelated factors that affect a company’s ability to survive and thrive in the long-run: profit.S. the going concern assumption is an accounting guideline. This paper will explore the managerial accounting decisions made by Ford Motor Company. and operates out of three regions: Europe. Accountants refer to this focus as the going concern assumption. sustainability is defined as “the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs” (p. This research paper will discuss the corporation’s responsibility and focus on continuing operations. The triple bottom line considers a company’s performance not only on its ability to generate economic profits. which allowed it to survive the . It is the second largest automaker in the U. people. As a multinational enterprise the company’s activities have a significant impact on the environmental. Detroit. which allows readers of financial statements to assume that the company will continue long enough to carry out its objectives and commitments. According to Kieso in Intermediate Accounting. it is more important than ever for a multinational firm such as Ford Motor Company to conform to the triple bottom line viewpoint.

while surviving the Great Depression. the company would become a world leader in the expansion and refinement of the assembly line concept. In 2008. In 2010. The Ford Motor Company has had many challenges to overcome since the global crisis. to achieve increased economies of scale. based on 2009 global revenues of $118. Within a decade. Michigan. Michigan. Henry Ford innovatively introduced the concept of the assembly line. Ford Motor Company would develop into one of the world’s largest and most profitable companies. As of 2010. and how the implementation of a sustainability strategy has allowed Ford Motor Company to be one of the more thriving automobile makers in the world.Great Recession that afflicted global economies during the late 2000’s. the company produced just a few cars a day at its factory in Detroit.3 billion. The company’s board submitted a Business Plan to the Senate Committee that detailed the Company’s growth and positioning in the market during this difficult period. enabling large scale manufacturing to take place and more importantly. Ford Motor Company is the second-largest U. Ford Motor Company ranked eighth on the Fortune 500 list. Ford produced over .S-based automaker and the fifth largest in the world based on 2010 vehicle sales. The Business Plan identified the value-adding activities in their respective categories of the firm that resulted in the company reaching its targeted Profit Margin to provide a competitive advantage. To reiterate. Furthermore. the research of this paper will explore the overall decision-making Ford Motor Company’s strategic accounting and sustainability strategy allowed them to make to withstand the global recession. Ford Motor Company: A Brief History Henry Ford founded the Ford Motor Company in 1903 in Dearborn. During the early years.

Land Rover. The aforementioned sales contributed to the overall liquidity of the Company. Jaguar and Land Rover were sold to Tata Motors of India for $2. painstakingly.5 million automobiles employing over 200. with One Team. investor. employee. Ford was the only U. Ford. and the majority of their ownership in Mazda. Jaguar. automaker that did not seek government bailout money as a result of the 2008 financial crisis. 2008 (Reuters 2008). Ford forecasted a reduction in its North American operating costs by nearly $5 billion through a number of tough business decisions. dealer. an examination of the companies plan for viability through its cost accounting strategy led it successfully through the Great Recession. For instance. as the United States automotive industry faced critical issues that threatened the survival of the industry as a whole.3 billion on June 2.” According to Ford’s Business Plan. as measured by our customer. and community satisfaction” (p. downsized its operations to match capacity to real . The knowledge and success that Ford Motor Company achieved in Europe and South America led the Company to adopt a plan the Company termed as “One Ford-One Team-One Plan-One Goal.S. supplier. The Ford Motor Company Business Plan On December 8th 2008.000 employees in over 90 manufacturing plants worldwide. One of the first major cost reduction decisions Ford made was to simplify its brand structure as the result of selling the following brands: Aston Martin. union. Ford Motor Company executives submitted a business plan to the Senate Banking Committee. For the purpose of this research paper. Additionally. working together as a lean. 8). global enterprise for automotive leadership. Ford developed a strategic goal to develop profitable growth for all stakeholders. One Ford “firmly established the principle of one global company.

the introduction of sustainability at Ford has been monumental in the success that the Company has enjoyed since the doom and gloom of the Great Recession. Ford Motor Company had about $30 billion in liquidity of which $19 billion in cash and $11 billion in available credit lines. Ford Motor Company strategically decided to leverage its strong U. Ford projected that all of its U.S. Ford has allocated approximately 50% of its U. manufacturing plants will have “flexible body shops” by 2012 that will allow the company to respond to changing consumer demands. various cost reductions were enacted to improve cash on the balance sheet by a total of $14 to $17 billion through 2010. In addition to the Ford Motor Company Business Plan.000 salaried and 45.000 hourly employees within a three year period.S. As a result. Also. Firstly. The first instrumental strategy employed was to aggressively restructure its operations to operate profitably at current demand and changing model mix.5 billion during 2009-2010. capacity to small and medium-sized vehicles. Secondly.demand that included closing 17 plants over a five year period and downsizing the workforce by 12. Capital spending was forecasted to be reduced by nearly $5. The Ford Business Plan to the Senate Banking Committee identified two strategies that were instrumental in surviving the Great Recession without receiving any governmental loan funds.S. The Benefits of Sustainability Previously. as of September 2008. the research paper would like to highlight a series of operating and financing actions that assisted in the survival of the Ford Motor Company. Secondly. In the area of manufacturing. we defined sustainability as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. manufacturing presence by converting three truck assembly plants to small car production to support the Company’s belief that a permanent demand shift to smaller more fuel efficient vehicles. It has become .

research and development cost. Environmental management accounting information is strategically used to support management in planning. which is a system. collection. EMA systems monetary information may include materials costs of product outputs. and controlling operations. For organizations to support sustainability. Monetary information presented in environmental management accounting differ slightly from traditionally collected and reported by financial and management accounting systems. waste and emission costs. Physical information has not been traditionally reported in managerial accounting systems but is a vital part of environmental management accounting. After a brief introduction of accounting for .increasingly evident that businesses must embed sustainability into their organizations to thrive in the long-term. The American Institute of CPAs states that “accounting for sustainability involves linking sustainability initiatives to company strategy. just to name a few. directing. used for the identification. Additionally. and providing measurement. and use of two types of information for internal decision making: monetary information and physical information (Braun p. materials costs of non-product outputs.890). accounting and performance management skills to ensure that sustainability is embedded into the day-to-day operations of the company” (ACIPA). the organizations utilize environmental management accounting. environmental management accounting information helps management accountants determine the best integration of sustainable practices throughout the organization. evaluating risks and opportunities. Some convincing business reasons to adopt sustainable practices include: 1) cost reduction 2) regulatory compliance 3) stakeholder influence 4) competitive strategy. The collection and measurement of this environmental physical information allows environmental management accounting to show managers a clearer picture of the company’s physical impact on the environment. analysis.

viable. which includes a commitment to sustainability. in terms of quality. Ford was able to survive the Great Recession by posting a pre-tax operating profit of $8. The commitment to sustainability has also led to Ford announcing in December 2011.8 billion-its third year in row of improved annual operating profits. As of 2012. Ford Motor Company has remained committed to the Ford One Plan that includes working together as one-in all aspects of the Company to produce vehicles that are: green. and safety and really smart design…the very best value by using our scale worldwide (Ford Sustainability 2011/2012). and fuel efficiency. As a result of the Ford One Plan and sustainability strategy. This commitment to producing more sustainable vehicles not only contributes to the financial bottom line but also makes significant contributions to the environmental sustainability of the planet as a whole. safe. Ford’s Sustainability Strategy In June 2012. Ford Motor Company has aligned its objectives through its Ford One Plan.S. profitably growing company for the good of all of us. a reinstatement of quarterly stock dividends to shareholders which are evidence of a strengthened balance sheet. We’re continuing to do that by making a full family of best-in-class vehicles. In 2011. the research paper will be concluded with an exploration of Ford Motor Company’s Blueprint for Sustainability. Ford’s sale of small cars in the U. smart.sustainability. and built with quality. increased by 25%. Ford Motor Company President and Chief Executive Officer described sustainability at Ford in a speech: Our goal is to create an exciting. .