Case Study on Creative Consumer Essay
Case Study on Creative Consumer
Using the old table could create a big issue for CCC since it appears not to attain goal congruence. Using the old table, the manager from Paris would not be doing good as indicated by the loss of $1,000,000 above. However, using the revised table where there is no allocation for fixed cost, the same manager from Paris would get segment margin of $3,000. It can be asserted that the revised table is more reasonable measurement of what is actually happening among the offices. It is not logical to use the old table to hold managers responsible for office performance since the common cost could not be traced to any of the offices.
It could be further noted that the results of evaluation of managers for ranking on who should come first, second, third and fourth placer are changed using the revised table. Before revision, New York comes first, followed by Chicago as second, Little Rock as third, and Paris as the last one. After revising the table there are no changes for the first and second placers but the new third placer is Little Rock and the last one is Paris. In effect, Little Rock and Paris exchanged positions if the allocation of common cost is not implemented. One could just imagine the consequence for failing to rate manager correctly.
For some they would sense it as favoritism and the results could be worse as it would create company issues that may not be intended at all. If the allocation of common cost is not explained to managers or not removed for evaluating performance, CCC could only expect to discourage the managers since the meaning to them is that increasing sales would increase the share of cost for each manager and the systems are just basically contradictory. They would be confused if they will still increase sales. If increasing sales increases cost, there is no way that could convince the manager on what is the level of revenues that would be good to attain.
Removing however the allocation of fixed based on revenues would simply put the proper correction. 3. The method that provides for more goal congruence and the justification. Goal congruence implies what will help the managers to act in the interest of the company since what are expected from them as standard of performance would motivate them to do the same and there is not conflict that would restrain them otherwise. Based on this definition, it is clear the use of the revised table where fixed costs are not allocated would provide the goal congruence.
Since fixed costs are sunk costs nothing could be done any more by managers to improve them by using heir power of influence or control. Allocation of the fixed cost therefore to demand better performance is not consistent with demanding accountability for performance. Effective internal decision making should lead managers to aspire for things that could lead their own companies better than competitors and the same is possible by motivating them so as to attain competitive advantage since people are best source of it.
Accounting systems must go in hand with objectives since using wrong methods could actually de-motivate people and resources would instead be wasted. Part of the human resources is the managers which are also part of the company’s responsibility accounting. Under this set up, basic principle of which should to hold the managers responsible or accountable for all costs of only if they have the authority to control or influence the same. 3. Conclusion
It can be concluded that goal congruence could be attained by CCC if the fixed cost are not allocated using the revised table. It would be consistent with the case facts’ declaration that the company is giving each office manager an authority and responsibility for all activities under one’s office. In addition, managers are paid for their salary with bonus based on other inputs which basically are connected with their performance. Having goal congruence is therefore desired, thus it could be attained.
This kind of desire was actually evident from CCS since the company has the practice of giving manager’s bonus based on the net income under each respective office. The only problem is wrong allocation. CCC’s managers are also given high level independence in relation to accountability for results thus management would be more than willing to implement the recommendation of this paper, that is, do away with the allocation of fixed cost. In this way, independence will be consistent with the authority and responsibility of each manager. References: Case Study – Creative Consumer Consultants, Ltd.