Triumph Automotive manufactures the rear-view mirrors that are used in cars. The newly appointed manager wants to cut the total cost of manufacturing by employing less-skilled labour to manufacture the product, which could affect the profit margin by 8%. However, this manufacturing approach has led to some issues and defects in assembling rear-view mirrors and as a result, Triumph Automotive has lost some of its customers. Senior management has intervened to examine this issue and explains to the manager about shifting the focus from profit maximisation to managing the financial and managerial resources for the well-being of the stakeholder and wider community. They also explain the orientation of interests of the managers and the shareholders of organisation in one direction, to achieve long-term goals without incurring any additional costs, such as agency costs. In this context: Required: Critically comment on the financial management objectives ‘profit-maximization’ and ‘shareholder wealth-maximization’.
Y8
Triumph Automotive manufactures the rear-view mirrors that are used in cars. The newly appointed manager wants to cut the total cost of manufacturing by employing less-skilled labour to manufacture the product, which could affect the profit margin by 8%.
However, this manufacturing approach has led to some issues and defects in assembling rear-view mirrors and as a result, Triumph Automotive has lost some of its customers.
Senior management has intervened to examine this issue and explains to the manager about shifting the focus from profit maximisation to managing the financial and managerial resources for the well-being of the stakeholder and wider community. They also explain the orientation of interests of the managers and the shareholders of organisation in one direction, to achieve long-term goals without incurring any additional costs, such as agency costs. In this context:
Required:
- Critically comment on the
financial management objectives ‘profit-maximization’ and ‘shareholder wealth-maximization’.
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