Background of the Case (Abstract)

The company Travel-space Trailers, focuses on customers looking for a lightweight affordable trailer that
can be readily towed by a mid-sized family car because families are looking for inexpensive outdoor vacation
experiences, the travel trailer business has seen tremendous development in recent years. In which the pandemic
outbreak contributed to a spike in travel trailer sales rising by as much as 170% from the previous year.

The second–generation owner and president of the business, Shane Moynihan, thinks that the retiree market
has a lot of room to grow in the future. Given pensioner’s generally robust health and the current national trend of
reconnecting with nature, he notes that the number of retirees is growing daily and camping has risen in popularity
among leisure activities.
However, despite the fact that the company promotes upward communication and a team-based approach to
decision-making, several facets of the business operation are examined where including the difficulties that various
divisions and people internally are encountered, including the divergent perspectives of the vice president of
marketing and sales, the production manager, and the vice president of purchasing and the materials handling. In
which the sales predictions for travel space trailers created by the current president are questionable. While, in the
areas of production, purchasing, and cash budgets, problems such as unclear inventory management and cost
estimation, dependence on aluminum as the primary raw material subject to fluctuations, and issues regarding the
accuracy and integrity of budget procedures are all revealed. The company’s extremely ambitious growth strategy
could stretch its current finance arrangements. Additionally, the business is heavily indebted, which could be
detrimental if sales decline or if there are any other unforeseen difficulties. With that being said, it should be taken
into account that the company is currently facing a series of issues that leads to discrepancies not only in the
management but also in the budget.

Statement of the Problem (Main and Sub Problems)

1. Should the company continue with the current figures and amounts using the budgeting strategy they have
implemented, or should the company use a flexible and rigid budgeting approach to manage expenses and
meet realistic revenues?
2. What issue may exist in the validity and reasonableness of the projected sales of the company?
3. What issues may exist in the cost estimates that the company has prepared including the costs of aluminum,
equipment, and selling and administrative expenses?
4. What are the issues that exist in the current financing schemes of the company that is used in paying off
current obligations?
5. How should the company improve the existing problem of company culture and relationships between
members?
Assumptions
1. Assume to disregard the effects of hyperinflation and inflation in the economy and the fluctuation in
currencies, particularly for US Dollars.
2. Assume ceteris paribus (all other things being equal) so that no economic factors can be changed in the
situation given
Analysis (with Supporting Computations, if any)

The company has faced a litany of problems in the area of budgeting, costing, and performance evaluation
by being inconsistent, inept, and incapable of bringing down costs and producing a cohesive budget that reflects
the operations of the company. The main problem that the company is facing is the production of an incoherent
and dubious figure in its budget. It is inconceivable to reason that department managers are not responsible for
the preparation of their responsible budget and make the accounting manager entirely responsible for preparing
the budget with no help from functional areas just because of a bonus based on company performance. A cohesive
and reflective master budget should have participative input from department managers (sales, purchasing,
inventory, S&A) and should be delegated to them the task of reporting the necessary figures and amounts that
their department has incurred and observed. Another problem is the usage of the current budgeting approach of
the company, which has produced subpar results and incorrect figures because of the lack of rigid and consistent
processes that are in place in the accounting and other departments in the company that should be involved in the
budgeting process. A budgeting approach that is reflective of the company’s goals and activities should be used
that will mirror the operations of the business and provide substantial explanations of the current and potential
expenses of the company.

The projected sales of the company are something that investors and other stakeholders may feel optimistic
about. Actual sales of the company in 2020 are $12,211 (in thousands) while projected sales of the company in
2021 amount to $28,000 (in thousands) which is double the actual sales. Although this may be understandable due
to the consistent increase in actual sales from 2015 to 2020, the sudden jump in the projected sales can be a
questionable pause for the company. Although this may be attributable to the expanding market, new marketing
strategy, and the introduction of a new line that will suit the retiree market, without much tangible information, the
amount may too unrealistic for the company to achieve.

The cost estimates have also been an area of suspicion. To start off, the cost of aluminum has been incurred
higher than it should be. The bulk of the high cost of aluminum can be attributed to the scattered geographical
location of the supplier and the cost of transportation due to a costly method of inventory and transportation. These
factors have led to an effect on the distribution cost which can contribute to the price of aluminum. In terms of the
equipment, the procurement and transition from the use of rented equipment have led to the company incurring
an increase in depreciation which could have an adverse effect on presenting the income of the company. Although
the company has eliminated its rent expense, it has adversely increased its depreciation expense which decreases
the income of the company. Lastly, the selling and administrative expense is quite high based on its $400,000
consistent figure. This amount is unreasonable until there is a tangible and transparent breakdown of the S&A
expenses the company is incurring to aid in planning for the control of these expenses.

The financing woes of the company are also an area of concern. The fact that the company is having a hard
time financing its obligations in time is a risk the company is incurring. By not paying its obligations on time, the
company will risk losing its credit rating and it could also face a much more rigid and strict process in the current
loan that they are undertaking. A certain protocol or scheme should be provided by the company to meet its
obligation, whether to increase revenues through a rigid and consistent production schedule, or financing through
investment and external investors.
Lastly, their incentivization schemes and bonus performance process should also be analyzed. In incentivization, a
theory proposed by Herzberg (1950) called the two-factor theory looks into how an employee will feel satisfied
given certain motivators (desire for recognition and achievement) and hygiene (policies, working environment, and
relationships). Although a bonus scheme based on company performance is understandable, an acceptable,
inclusive, and realistic bonus scheme that is based on employee performance should be used by the company to
promote fairness among its employees using a given set of performance evaluation metrics.

Another thing to point out is the questionable human resource employment in the company, especially
among its top executives and managers. It is important that as a company, cohesive criteria should be formulated
to assess the people that is apt for the job and promote a positive culture in the company. Hiring people that are
in your circle of friends and family will provide a negative perception among current and potential employees.

Recommendations

In view of the foregoing situation, and in accordance with the fundamental principles of running a business
(which is to provide financial, sustainable, and inclusive growth), we recommend the following to improve the
operations of the business:
● For the budgeting process, it is important that a collaborative/participative, flexible and activity-
based budgeting that will realistically and completely provide the activities needed to support
amounts in the budget with the help of the functional departments in the company in the supervision
of the accounting manager. It is also recommended that a policy for the efficient distribution of tasks
among departments involved in the formulation of the budget should be used.
● For sales, it is reasonable to build and maintain a sales pipeline to reasonably assess the current
market of the company. It is also recommended to continue expanding in the retiree market, but
never lose the established market that the company has built among its family market.
● For production, it is reasonably recommended that a Just-In-Time system, anchored by a consistent
production schedule in collaboration with the production and purchasing and handling manager,
should be adopted to decrease distribution costs in aluminum. Alternatives to aluminum as raw
materials should be looked upon by the department and the production manager to reasonably
assess alternative costs and benefits on materials for the trailer.
● For expenses, it is reasonably recommended to formulate internal and financial controls for
equipment to maintain its intrinsic value. A transparent and complete breakdown of S&A should be
used to formulate ways to cut down on these costs.
● For bonuses, schemes, and employee performance, it is reasonably recommended that a policy
focused on employee performance for company incentives should be adopted to ensure that internal
controls on variances and expenses are met without compromising the operations of the business.
A consistent and inclusive performance evaluation should be created to reasonably assess and
evaluate the bonuses that employees and executives are getting.
● For financing and company obligations, it is reasonably recommended to provide a framework that
will include plans on increasing revenue, reducing business costs, and increasing funds to pay
company obligations on time. It is also important for the company to utilize the option of
renegotiating the terms of its liabilities.
 ● For human resource employment, it is important to provide an unbiased process for hiring employees
and executives. Even if it is a family member or a friend, it is necessary for the company to make
them participate in the employment process to ensure that qualified individuals are hired for key
positions.
Notes:
Strengths
● The affordability and quality of the
Teardrop-style Travel Trailers make
them outstanding in the market,
specifically for families who own
midsize cars.
● The brand reputation of the company
has been established by the former
President, Paul Moynihan, as a
pioneer in the industry for several
years.
● The target market demographics,
particularly the retiree market, show
continuous growth.
Opportunities
● The spending power of the targeted
demographics will positively affect the
growth of sales through market
expansion
● Promote and emphasize the value and
quality benefits that the Travel
Trailers offer, such as durability,
comfortability, and affordability.
● Strengthen relationships with vendors
through timely payments.
Weaknesses
● Personal favors in hiring employees
whose educational background
attainment is not fit for the position to
lead to discrepancies.
● A lack of team dynamics leads to
internal conflicts, which lowers
efficiency and effectiveness.
● The transfer of leadership led to
inconsistency due to the limited
experience, strategic thinking, and
decision-making abilities of the
current president, Shane Moynihan.
Threats
● Competition among all forms of
vacation and leisure activities,
including theme parks, beach or cabin
rentals, health spas, resorts, and
cruise vacations.
● Poor vendor reputation leads to
struggles with outsourcing low-cost
materials, such as aluminum needed
for manufacturing, which will also
affect production.
● Weather conditions, such as
hurricanes, flooding, and droughts,
can have a significant effect on the
travel trailer industry.