Case Study: Five-Star

Managerial Accounting
 Table of Contents

Brief Introduction................................................................................................................................1
Background..........................................................................................................................................1
Findings................................................................................................................................................2
Contribution of each team in the recovery process............................................................................2
Value chain and changes...................................................................................................................4
Management Accounting Information...............................................................................................6
Analysis & Recommendation..............................................................................................................7
References..........................................................................................................................................10
Managerial Accounting: Case Study

Brief Introduction

The main purpose of this study is to find out that how the company can manage its operation

during a severe pandemic and run its operations like before. Over the past seven years, sales

of electric fans manufactured by a Five-Star company was increasing as the company

employs a sales, technological expert, cost, production, and engineering manager, as well as

other automated systems in the assembly plant. Covid-19, on the other hand, had compelled

them to alter their tactics and costing methods. It is now critical to classify each component

of the product value chain and reorganize overall strategies across all departments to reduce

risk. If things get worse, the teams' contributions to cost and recovery analysis will help the

business expand in the future. Working on big problems like production disruption, sales

declines, and profit margins in covid-19 will be difficult for line managers, but an accurate

approach will help the business remain successful even through this pandemic.

Background

COVID-19 was officially declared a pandemic by the World Health Organization on March

11, 2020 (Sohrabi et al., 2020; WHO, 2020a), highlighting the global uncertainty that had

dropped lives and health into a still-going crisis. According to a report issued by Fortune

magazine on Feb 21, 2020, before COVID-19 has been categorized by WHO as a pandemic,

the COVID-19 pandemic had disrupted the operations of 94 percent of Fortune 1000

corporations. Because of the extremely linked world we're living in, experts across

professional functionaries have long anticipated that a global pandemic will stretch the

components of global supply chains and demands (Daszak, 2012; Ford et al., 2009; Webster,

1997), initiating a cross-border economic catastrophe. The demand for essential goods like

personal protective equipment, medical equipment, and dry canned foods has risen.

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Managerial Accounting: Case Study

Meanwhile, supply chain, logistics, and production capability confront plenty of issues that

are limiting their capabilities. Border restrictions, supply market lockdowns, vehicle

transportation, and foreign trade disruptions, Direct and Indirect labor shortages,

Warehousing cost, and keeping physical distance in manufacturing facilities are just a few

examples (Paul and Chowdhury, 2020a, Amankwah-Amoah, 2020b). The pandemic is

expected to have a serious impact on world foreign trade due to these multidisciplinary

effects on operations, direct cost, as well as other economic and financial problems (Dontoh

et al., 2020). The World Trade Organization (WTO), for example, has anticipated that global

trade will slow down by 13–32 percent in 2020 as a result of the COVID-19 crisis.

Findings

Contribution of each team in the recovery process

The biggest challenge the company will face in recovery is that transformative change may

be difficult for some workers. While some employees will prefer remote work, others may be

uncomfortable working outside of their traditional work setting. To form a multidisciplinary

team, Areas of the Business operational areas which are finance, supply chain, purchasing,

HR, marketing, sales, and customer services should be contributing to the analysis. Put

people first by forming robust cross-organizational partnerships based on accountability and

confidence. This will aid in the governance, monitoring, and tracking of loss during the

pandemic to achieve resilient and intelligent activities during a crisis of unprecedented

proportions.

Every organization's top priority should be based on workers' safety in a work setting where

such pandemics are a consistent threat. Companies can accomplish this by implementing a

rigorous set of guidelines and policies within each area, which may include improved

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Managerial Accounting: Case Study

hygiene-related measures, the supply of additional personal protective equipment as needed,

social distancing, and changes to current governance and practices. Finance and other major

areas like marketing, sales, and supply chain must forecast the impact of price increment to

expand the profit margin and overall profitability and prepare the budget for the possible

opportunities. The proper production schedule should be prepared because if the company

decides to reduce the price then it will automatically increase the demand for electric fans in

the market. Operations are impacted by ambiguity and uncertainty caused by sudden changes

in the market, which affect forecasting and decision-making. HR should contribute by

maintaining efficient performance management at the company while maintaining physical

separation and remote working procedures. Consider solutions that allow the accounting team

to successfully communicate and estimate the coverage of the company's fixed cost. To best

manage the fixed cost, activity-based costing will be accurate for decision-making.

Furthermore, the contribution margin of each fan and the correct costing method will result in

the best recovery strategy.

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Managerial Accounting: Case Study

Figure 1: Recovery model

Immediate response and actions must be taken to ensure that people were safe and that

critical business functions continued to function. This brief period is characterized by high

effort and possibly chaotic activity. Each area of business operation should focus on having a

more organized and coordinated effort to make the operations stable again. They must plan to

restore the direct and indirect material and other resources needed to be enhanced,

recompiled, restored, reassigned, budgeted, and deployed. To collaborate around a stable

basis and path forward, use experience gained and evolving trends from previous stages.

Value chain and changes

Covid-19 is expected to affect a wide range of value chains and operations. Demand volatility

and companies' capability to handle such volatility in demand are mentioned by researchers

in the field of demand management. COVID-19 has had an impact on consumer buying

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Managerial Accounting: Case Study

patterns for both necessary and unnecessary items (Hakovirta and Denuwara, 2020,

Mollenkopf et al., 2020). Apart from demand fluctuations, a variety of industries are

experiencing significant operational constraints as a result of lockdowns, social distancing

measures, and the danger COVID-19 poses to workers' wellbeing.

Figure 2: Value Chain Process

Global Value Chains have been severely disrupted as a result of the pandemic. Household

appliance vendors have been hit hard by the drop in consumer demand for electricity and the

closing of retail shops in high-income countries. The effect hasn't been uniformed across the

board. Sports goods companies are rebounding as containment measures are lifted and stores

in key markets reopen, although household appliance companies are also struggling. Inbound

and outbound logistics, marketing and sales, and service are the main operating activities of

the electric fan value chain. The purpose of these sets of operations is to create value that is

greater than the cost of production, which results in a higher profit.

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Managerial Accounting: Case Study

Figure 3: Effect of COVID-19 on value chain process

Five star should use cross-functional strategy to overcome and for sustainability in the future.

During the pandemic, almost every company started online operations because they cannot

afford to shut the business. Five star should start their operations online from the point of

initiation which is the acquisition of raw material to their end consumer which will reduce

their inventory levels. The change would give them an advantage in the pandemic. Customer

can find their desire product at their place by ordering online. The same goes for suppliers

and vendors, they can also collaborate online by using vendor-managed inventory. VMI will

help in not holding the extra stock and will save the cost for the warehouse. Logistics can also

be shift online so that the Real-time information will flow accordingly. When it comes to

marketing and sales, the best way to get the desire sales are by marketing online on different

social media platforms.

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Managerial Accounting: Case Study

Management Accounting Information

Management faces difficulties as a result of the confusion created by Covid-19’s lockdown,

and managerial accountants are reminded to be cautious of management's decisions. In case

of impairment of assets, leading to a reduction in sales and profitability, impairment factors

may need to be checked. An extended lockdown may affect growth prospects, as well as

capitalization of borrowing costs. Estimates should be based on the best available information

about previous events, current circumstances, and economic predictions.

When analyzing forecast conditions, both the consequences of Covid-19 and the considerable

government support measures in place should be taken into account. Due to the uncertainty

created by Covid-19, if 5-star estimates are based on accurate and supportable data, the

accompanying disclosures may provide even transparency to financial statement users. A

disruption in the supply chain will result in a significant increase in the cost of goods

produced. As a result, scrutinize restrictive provisions of fixed-COST contracts that do not

include an exaggeration provision. Examine the vehicles' warranty and service support

extension provisions as well.

Valuations are going to be difficult to assess due to the increased level of uncertainty about

future business performance and economic conditions impacting assumptions. In situations

where companies have dislocated their operations, the modifications may not be substantial,

so accountants should have no difficulty performing their accounting processes, and this may

have an effect on inventory valuation. So, Inventory valuation necessitates a thorough

examination of fixed overheads.

Any preliminary evaluation by management of the entity's ability to continue as a going

concern should also be taken into account by the accountant. Covid-19 would likely have an

impact on such preliminary assessments. Assess the going concern's viability based on

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accurate data, both historical and current; forward-looking information in hand; and incidents

that may have occurred after the financial reporting period's end date before the accounts are

finalized.

Analysis & Recommendation

This finding implies that when one segment fails to function properly, the entire operation is

interrupted. The impacts of demand, supply, manufacturing, trade, logistics, and relationships

will all combine to bring the decline in the profit margins. When direct raw materials are

scarce, increasing production is neither feasible nor practicable. An author reported in their

study that a hand sanitizer firm in Australia had to halt its production facility due to a

shortage of direct materials.

Supplier failures cause extreme production disruptions and backlog for businesses in the

production management area (Leite et al., 2020). Furthermore, other policy-related changes,

such as reducing office working hours as shown in Fig. 2 and making workers work on

alternate days to keep social distance in the office, have diminished the firms' production

capacity. Employees are still incapable of working full time as a result of this social

distancing and health concerning issues, resulting in a workforce shortage. Also, According

to (Dente and Hashimoto, 2020) the factory's limited activities caused the machine to be

outdated and damage equipment and capital assets. As a result, manufacturers have

experienced supply disruptions due to the abrupt closure of foreign vendors' activities

following local limitations imposed by lockdowns.

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Managerial Accounting: Case Study

Figure 4: World Wide Declining in Work Force

Furthermore, following government policies and guidelines, business partners, such as

manufacturers, suppliers, and distributors, may close or restrict their facilities. While physical

networks were the primary mode of distribution for many years, the pandemic has allowed

the company to go completely online or to choose a hybrid model. Furthermore, due to the

constraints, marketing expenses have been reduced and adversely affect the sales. While

reducing overhead costs can be significant for financial stability.

Operation restructuring strategies have been suggested as a way to both mitigate current

effects and ensure a more robust operation in the post-COVID-19 period. Many companies

used the offshoring approach in the pre-COVID-19 period, establishing production plants in

developed countries with the required logistical support to reduce production costs.

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Managerial Accounting: Case Study

Besides, due to existing measures of social distancing, only a small amount of workers are

permitted to work in the factory. It is recommended to apply automation in the production

line so that it can operate with less human interaction to increase production capacity despite

reduced staff. Companies must establish new operational alliances in addition to restructuring

strategies for continuity in the flow of goods and services. To ensure locational proximity, a

company may need to identify and establish relationships with new partners while re-shoring

its production facility.

It is also recommended to use organizational strategy models to address the sales area.

instead of focusing on markets, products and skills, projects, and so on. In a strong economy,

this may have worked well enough, but in a competitive market, focus on your sales function

to win business. The sales area is how you connect all of your products to the consumer, and

it's how you strategize.

Lastly, many firms responded to the Covid-19 pandemic by shifting their sales interactions to

video conferences or phones. However, for seeking long-term opportunities it is important to

find the area of improvisation, rather than maintain it because the sales experience of the

customer creates value and differentiation for the future and customers to make the entire

experience more appealing. Consider new ways to assist consumers in recognizing concerns

and identifying opportunities that are still unconsidered before. With video and phone, the

company can track sales data and increase its overall market share by deeper knowledge and

higher insight is simpler than ever.

References

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Managerial Accounting: Case Study

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Daszak P. Anatomy of a pandemic. The Lancet. 2012;380:1883–1884.

Dontoh A., Elayan F.A., Ronen J., Ronen T. Unfair “Fair Value” in illiquid markets:

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Sohrabi C., Alsafi Z., O’Neill N., Khan M., Kerwan A., Al-Jabir A., Iosifidis C., Agha R.

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