Republic of the Philippines

BATANGAS STATE UNIVERSITY

COLLEGE OF ACCOUNTANCY, BUSINESS, ECONOMICS, AND
INTERNATIONAL HOSPITALITY MANAGEMENT
Pablo Borbon Main I, Rizal Avenue, Batangas City

Cost Management and Strategy

Case Analysis

Submitted To:

Ms. Eunize V. Escalona

ACC 206

By:

Catena, Maica C.

Evangelista, Cindy B.

Maala, Edsel J.

Peñaflor, Vincent Jay Z.

Saludes, Joel A.

BSA - 2203
 Republic of the Philippines
BATANGAS STATE UNIVERSITY
COLLEGE OF ACCOUNTANCY, BUSINESS, ECONOMICS, AND
INTERNATIONAL HOSPITALITY MANAGEMENT
Pablo Borbon Main I, Rizal Avenue, Batangas City

CASE 1:
One of the many changes in the business environment in recent years that has had significant impact
on cost management practices is a "focus on the customer". You are part of the management team in a
medium-size Internet service company. The company is just three years old and is growing dramatically,
doubling its customer base every six months.
Required:
a. Describe your typical customer's needs and service expectations.
b. How has the doubling of your firm's customer base every six months affected its ability to
maintain this focus on the customer? If this dramatic growth continues, what are some
specific actions your firm can take to retain its goal of "focus on the customer"?

ANSWERS:
A. Serving a large volume of clients in just three years in the industry, would make the customers
expect a lot. As a growing Internet Service Company, our typical customer needs a fast and reliable
internet connection at a favorable or just price. They would expect a fast-speed service that is consistent
and with minimal downtime with which there is a secured availability of service repair in case of error or
malfunction.

B. As the firm focus on the customer, the product life cycle has been shorter and shorter to conform
to the consumer expectation. The firm needs to focus on three things: product functionality, product
quality and product customization all at the same time. With the doubling of customer base every six
months, it would be difficult to maintain how the firm accommodates the particular wants and needs of
the clients. The rapid growth would diminish the firm's focus thus leading to sacrifice any of the three
things that we need to consider. In short, the firm would undoubtedly fail without strategic back up plan.
If this dramatic growth continues, the firm needs to re-evaluate its performance in the past three years and
see what is there to improve to better conform with the consumer expectations. The critical part about this
is that the firm isn't only faced with the problem of quality but also of quantity. Several things that needs
to be checked are the capacity of the personnel and resources to accommodate the demands of the
consumer and if it is sufficient in the vast amount of customer base.
 Republic of the Philippines
BATANGAS STATE UNIVERSITY
COLLEGE OF ACCOUNTANCY, BUSINESS, ECONOMICS, AND
INTERNATIONAL HOSPITALITY MANAGEMENT
Pablo Borbon Main I, Rizal Avenue, Batangas City

CASE 2:
Apex Corporation manufactures a complete line of high quality bits for electric drills. Apex has a
good record for product innovation and effective marketing and distribution. An increase in domestic and
international competition during the past two years has limited the firm's sales growth to 3 percent per
year, down from the previous five-year average annual growth of 5 percent. In addition, market share
declined by 0.5 percent this past year. Apex is experiencing profit reductions caused by price competition
and manufacturing cost increases.
Required:
Choose one of the 13 contemporary management techniques introduced in Chapter 1: Explain
why the technique you selected is appropriate in helping Apex develop a plan for reversing the
decline in sales growth and controlling the growth in costs.

ANSWER:
With the help of the 13 Contemporary Management Techniques, the difficulties and
circumstances that the corporation are facing may be answered or unravelled. Apex Corporation is
experiencing problems with regards to the declining of market share and profit reductions which is caused
by price competition and manufacturing cost increases. One of the management techniques that can be
applied to these hindrances to the sales growth and cost reduction of the company is the Target Costing.
This approach determines cost by price. It involves setting target cost by subtracting a desired profit
margin from a competitive market price. By subtracting the desired profit, sales growth is certain plus
cost can be reduced. With this technique, Apex Corporation will adopt strict cost reduction measures and
redesign the product or manufacturing process to meet the market price and remain profitable. If the Apex
Corporation will practice this technique, it will help them gain competitive advantage against competitors
because this is something only Apex Corporation can control because it is on the management’s scope.
Other competitors will find it difficult to get along with Apex Corporation unless they also applied the
same technique. However, the use of only one technique will not ensure the progress in the long run. If
the Target Costing is applied alone, the product quality will be neglected. This approach is only after the
benefit of the corporation and not consumer-friendly. The customer satisfaction must also be given equal
importance so the usage of Target Costing will be useless in this case. It will only be progressive for less
than a year. To have better results, the application of this technique must not compromise the good
records of Apex Corporation when it comes to innovation, marketing and distribution.
 Republic of the Philippines
BATANGAS STATE UNIVERSITY
COLLEGE OF ACCOUNTANCY, BUSINESS, ECONOMICS, AND
INTERNATIONAL HOSPITALITY MANAGEMENT
Pablo Borbon Main I, Rizal Avenue, Batangas City

CASE 3:
The manager of a business unit of a large corporation made some projections regarding sales and
profits for the upcoming final quarter of the year. The managers' performance evaluation and
compensation depended significantly on his ability to meet budget goals. The manager discovered that the
final quarter would have to be a particularly good quarter in order to meet these goals. He decided to
implement a sales program offering liberal payment terms in order to pull some sales that would normally
occur next year into the current year. Customers accepting delivery in the fourth quarter would not have
to pay the invoice for 140 days. Also, he sold some equipment that was not being used and realized a
significant profit on the sale.
Required:
Are these actions ethical? Why or why not?

ANSWER:
Part of managing a business is making decisions that will help advance the entity performance. In
the situation given above, there are actions that we perceive as ethical while the others as unethical. On
the first action, when the manager decided to implement sales program offering liberal payment terms, we
perceive it as an ethical action because it is legal and a strategy that could help the business increase sales,
and since it is a business strategy, it is judged as to how these action will affect the firms operation and
profits. The second action is considered unethical where the manager pull some sales that would normally
occur next year into the current year. Attempting to pull the sales from one period to another is considered
window dressing which produces misleading financial statements and thus considered fraudulent. The
third action that the manager did is that he sold some equipment that was not being used and realized a
significant profit on the sale, for us it is considered ethical because the equipment is at its downtime and
the sale was also for the benefit and profit of the company. However the fact that that this strategy is for
the self interest of the manager and the purpose of selling those equipment is to achieve his bonus and
compensation makes it unethical.
 Republic of the Philippines
BATANGAS STATE UNIVERSITY
COLLEGE OF ACCOUNTANCY, BUSINESS, ECONOMICS, AND
INTERNATIONAL HOSPITALITY MANAGEMENT
Pablo Borbon Main I, Rizal Avenue, Batangas City

CASE 4:
The controller of one division of a large diversified firm is compensated by salary plus bonus.
The bonus is a significant part of total compensation, and is based directly on the profits of the division.
Thus, the controller has an incentive to find ways to increase profits, including the delay of discretionary
expenses such as research and development, delay of maintenance and repair of manufacturing
equipment, and delay of sales promotions.
Required:
Is finding ways to increase profits as described above unethical? Why or why not? Who
is to blame, if anyone?

ANSWER:
The ways of how the controller, on the given scenario, increases the profits for him/her to be able
to get more compensation, shows unethical practice. It is because on the given scenario, it is said that
there are delay of discretionary expenses such as R&D, delay of maintenance and repair of manufacturing
equipment, and delay of sales promotion. From that, there is an understatement of expenses (in which it
excluded the given expenses on the income statement) and there is an overstatement of profit, realizing
that the ways of doing these activities are for his/her own sake. Also, controller/management accountants
must have the competence, confidentiality, integrity, and credibility to serve management effectively.
According to the Institute of Management Accountants (IMA) Statement of Ethical Professional Practice,
under Credibility, controller/management accountant must communicate information fairly and
objectively and to disclose all delays or deficiencies in information, timeliness, processing, or internal
controls in conformance with organization policy and/or applicable law. Also, it lies on the ethical
standard of Integrity which shows conflict of interests and an attempt to subvert the firm's performance
incentive system. Hence, the said action is said to be unethical & the controller and the incentive system
of the firm must be blame for such actions because it can be use as an advantage to manipulate firm's
profit and for self-serving purposes.
 Republic of the Philippines
BATANGAS STATE UNIVERSITY
COLLEGE OF ACCOUNTANCY, BUSINESS, ECONOMICS, AND
INTERNATIONAL HOSPITALITY MANAGEMENT
Pablo Borbon Main I, Rizal Avenue, Batangas City

CASE 5:
Identify two of the most successful companies or organizations in today's business environment,
in your opinion. Explain why they are so successful.

ANSWERS:
Walmart Inc. is an American multinational retail corporation that operates a chain of
hypermarkets, discount department stores, and grocery stores, headquartered in Bentonville, Arkansas. As
of January 31, 2020, Walmart has 11,503 stores and clubs in 27 countries, operating under 55
different names. Walmart is the world's largest company by revenue, with US$514.405 billion, according
to the Fortune Global 500 list in 2019.

The millennial customers are interested in three things. They are convenience, low prices and
product quality. Walmart applies its generic strategy to achieve competitive advantage based primarily
on low cost and the correspondingly low selling prices of goods offered to consumers in the international
retail industry. Walmart achieved their success in large part due to their Everyday Low Price (EDLP)
strategy, a strategy that offers low prices to customers throughout the year instead of offering these low
prices only on sales events. This strategy increases both sales and customer loyalty.

Walt Disney Company, known as Disney, was originally founded on October 16, 1923, by
brothers Walt and Roy O. Disney as the Disney Brothers Cartoon Studio. The company established itself
as a leader in the American animation industry before diversifying into live-action film production,
television, and theme parks.

Disney considers extraordinary customer experience as an essential element for business success.
Since the days of its creation, Disney has set providing exceptional customer service as one of its top
priorities. With a vision of “We create happiness” the company showed to its customers as well as
employees that regardless of the position of the worker’s in the amusement park, their main objective was
creating customer happiness. Disney is also focused on creating a “performance culture,” which are “sets
of location-specific behaviors, mannerisms, terms, and values that direct and enhance an employee’s role
in a specific business unit.” Disney creates various local cultures within the organization. In other words,
different parts of the company set their own values and goals, which are most relevant to them. Disney
focuses on all little details that are probably not even consciously noticed by guests, which adds to the
overall experience and help to exceed expectations.
 Republic of the Philippines
BATANGAS STATE UNIVERSITY
COLLEGE OF ACCOUNTANCY, BUSINESS, ECONOMICS, AND
INTERNATIONAL HOSPITALITY MANAGEMENT
Pablo Borbon Main I, Rizal Avenue, Batangas City

NARRATIVE AND DOCUMENTATION

After receiving the instructions, the group decided to analyze all of the cases or questions first.
All of the thoughts and answers of each member were accepted and discussed individually and as a group.
After coming up with the summarization of common results, we also decided to divide the cases and the
members who will construct the final answers for each, through draw lots, assuring that all members
contributed to each of the questions, and were assigned fairly.

The following are the cases and the member assigned:

Case 1 – Catena, Maica C.

Case 2 – Saludes, Joel A.

Case 3 – Maala, Edsel J.

Case 4 – Peñaflor, Vincent Jay Z.

Case 5 – Evangelista, Cindy B.