ACCT440 Spring 2024 Individual assignments Management Control Case Ivy Company ("Ivy") has been established in Hong Kong for thirty years. It is engaged in manufacturing and retailing of naturally based herbal cosmetic products. Its retail outlets sell both self-made and imported cosmetic products. Recently, many tourists visited HK and are interested in shopping including cosmetic products. Ivy's directors are thinking about extending to online business and offering more choice to retail consumers and overseas wholesalers. As to the self-manufactured products, Ivy conducts extensive research to develop high-quality cosmetic products. Recently, the gross margin has fallen because of increasing competition. Ivy must reduce the price to boost sales volume. Ivy's directors have identified two strategic directions for the coming five-year plan. The first strategy is investing a large amount in R&D to develop differentiated products. The second strategy is investing an affordable amount to upgrade existing products and launch them as a new brand. This strategy requires middle-level research staff to make use of the existing equipment. If the first strategy is implemented, the company needs to borrow money but the return from innovative products is uncertain. Ivy's directors have always been frustrated by the control and evaluation of the R&D department. The manager of the R&D department has been very protective. Over the previous years, the total expenditure of the R&D department has increased steadily based on the incremental budgets prepared by the R&D manager. Employee costs are the largest item, and the salary of the R&D manager is slightly above the industry's average. The R&D manager also requests replacement of equipment frequently for improving operations. The Board of Directors (BoD) agreed that R&D is important to the company's long-term development. However, they are keen to develop and implement an effective system to measure and monitor the performance of the R&D department. Required: (a) Based on the above information, describe three features of the R&D department from the viewpoint of management accounting. (b) Discuss how to apply the management control techniques: personnel and cultural control, result control, and action control on R&D department. (c) The company uses budgets to motivate managers to achieve company objectives and improve efficiency. The R&D department is a discretionary cost center. The R&D manager will be awarded a bonus if actual expenses are below budget. The calculation of bonus is simple. If there is a 5% reduction on the original budget, he will get an extra of one-month salary at the year end. Please (i) comment on the current bonus scheme of R&D department, and (ii) suggest a better budgetary control scheme and measure criteria that would help the company to control cost and achieve its objectives of offering more choice of quality products.

ACCT440 Spring 2024 Individual assignments Management Control Case Ivy Company ("Ivy") has been established in Hong Kong for thirty years. It is engaged in manufacturing and retailing of naturally based herbal cosmetic products. Its retail outlets sell both self-made and imported cosmetic products. Recently, many tourists visited HK and are interested in shopping including cosmetic products. Ivy's directors are thinking about extending to online business and offering more choice to retail consumers and overseas wholesalers. As to the self-manufactured products, Ivy conducts extensive research to develop high-quality cosmetic products. Recently, the gross margin has fallen because of increasing competition. Ivy must reduce the price to boost sales volume. Ivy's directors have identified two strategic directions for the coming five-year plan. The first strategy is investing a large amount in R&D to develop differentiated products. The second strategy is investing an affordable amount to upgrade existing products and launch them as a new brand. This strategy requires middle-level research staff to make use of the existing equipment. If the first strategy is implemented, the company needs to borrow money but the return from innovative products is uncertain. Ivy's directors have always been frustrated by the control and evaluation of the R&D department. The manager of the R&D department has been very protective. Over the previous years, the total expenditure of the R&D department has increased steadily based on the incremental budgets prepared by the R&D manager. Employee costs are the largest item, and the salary of the R&D manager is slightly above the industry's average. The R&D manager also requests replacement of equipment frequently for improving operations. The Board of Directors (BoD) agreed that R&D is important to the company's long-term development. However, they are keen to develop and implement an effective system to measure and monitor the performance of the R&D department. Required: (a) Based on the above information, describe three features of the R&D department from the viewpoint of management accounting. (b) Discuss how to apply the management control techniques: personnel and cultural control, result control, and action control on R&D department. (c) The company uses budgets to motivate managers to achieve company objectives and improve efficiency. The R&D department is a discretionary cost center. The R&D manager will be awarded a bonus if actual expenses are below budget. The calculation of bonus is simple. If there is a 5% reduction on the original budget, he will get an extra of one-month salary at the year end. Please (i) comment on the current bonus scheme of R&D department, and (ii) suggest a better budgetary control scheme and measure criteria that would help the company to control cost and achieve its objectives of offering more choice of quality products.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Transcribed Image Text:ACCT440 Spring 2024 Individual assignments Management Control Case Ivy Company ("Ivy") has been established in Hong Kong for thirty years. It is engaged in manufacturing and retailing of naturally based herbal cosmetic products. Its retail outlets sell both self-made and imported cosmetic products. Recently, many tourists visited HK and are interested in shopping including cosmetic products. Ivy's directors are thinking about extending to online business and offering more choice to retail consumers and overseas wholesalers. As to the self-manufactured products, Ivy conducts extensive research to develop high-quality cosmetic products. Recently, the gross margin has fallen because of increasing competition. Ivy must reduce the price to boost sales volume. Ivy's directors have identified two strategic directions for the coming five-year plan. The first strategy is investing a large amount in R&D to develop differentiated products. The second strategy is investing an affordable amount to upgrade existing products and launch them as a new brand. This strategy requires middle-level research staff to make use of the existing equipment. If the first strategy is implemented, the company needs to borrow money but the return from innovative products is uncertain. Ivy's directors have always been frustrated by the control and evaluation of the R&D department. The manager of the R&D department has been very protective. Over the previous years, the total expenditure of the R&D department has increased steadily based on the incremental budgets prepared by the R&D manager. Employee costs are the largest item, and the salary of the R&D manager is slightly above the industry's average. The R&D manager also requests replacement of equipment frequently for improving operations. The Board of Directors (BoD) agreed that R&D is important to the company's long-term development. However, they are keen to develop and implement an effective system to measure and monitor the performance of the R&D department. Required: (a) Based on the above information, describe three features of the R&D department from the viewpoint of management accounting. (b) Discuss how to apply the management control techniques: personnel and cultural control, result control, and action control on R&D department. (c) The company uses budgets to motivate managers to achieve company objectives and improve efficiency. The R&D department is a discretionary cost center. The R&D manager will be awarded a bonus if actual expenses are below budget. The calculation of bonus is simple. If there is a 5% reduction on the original budget, he will get an extra of one-month salary at the year end. Please (i) comment on the current bonus scheme of R&D department, and (ii) suggest a better budgetary control scheme and measure criteria that would help the company to control cost and achieve its objectives of offering more choice of quality products.

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