Question

College Products

College Products is a division of a large manufacturing company. The company makes a variety of collegiate branded products, sold on campuses worldwide. Most employees are paid on an hourly basis. Employees receive yearly reviews to evaluate performance and to determine an appropriate pay increase. College’s payroll is processed by the corporate payroll department from input documents prepared by College. The following HR and payroll procedures are related to the hourly payroll employees at College.

Department supervisors initiate requests for additional employees by filling out a three-part employee requisition form. After a requisition is completed, the department supervisor signs it, files a copy by date, and gives the remaining two copies to the production supervisor. The production supervisor reviews and signs the copies and gives them to the HR manager. The HR manager reviews the request with the division controller. They both sign the requisition. The pay rate for the job also is determined at that time and included on the requisition. If the requisition is approved, the HR manager initiates hiring procedures by placing advertisements in local papers and announcing the opening internally. The HR manager and the supervisor interview the applicants together. They then evaluate the applicants and make a selection. The HR manager and the employee fill out the two-part wage and deduction form. The HR manager files a copy of the wage and deduction form and the personnel requisition by employee name. The remaining copies of each form are given to the division accountant.

The HR manager selects and reviews the records from the personnel file for employees who are due for their annual review. The HR manager puts some basic employee information on a three-part review form and gives it to the appropriate supervisor for evaluation. The supervisor completes and signs the form, files a copy, and gives the remaining copies to the production supervisor, who reviews and signs the evaluation. The production supervisor returns it to the HR manager. The HR manager reviews it with the controller. They assign a new rate and sign the review form, which is given to the division accountant.

The division accountant uses the new employee information and the employee review form to prepare payroll action notices. The accountant signs the payroll action notices and files them with the other related forms by date. Each week, a clerk in the corporate payroll department retrieves the payroll forms from the division accountant, checks the signature on all payroll action notices, and processes the payroll. The forms, checks, and reports are sent back to the division accountant. The division accountant refiles the forms and gives the checks to the production supervisor, who in turn distributes them to the employees.

Source: Cengage, LA, Dull, RB, & Gelinas, UJ 2014, Accounting Information Systems, Cengage Learning Australia, Melbourne.

Question. Alan Harrison has been recently appointed as the CEO of “College Products”. Three days after his appointment, he met with all middle managers and announced that College Products has to adopt a cost leadership strategy. All managers (including the HR manager) have been asked to come up with a plan in their department to adopt this strategy. In approximately 300 words suggest two changes that can be implemented in the above case study to align the process with cost leadership strategy.

Answer 1

Cost Leadership is the mechanism of establishing a competitive advantage by having the lowest cost of operation in the industry. This strategy is especially beneficial in a market where the price is an important factor.

                    The primary objective of a firm aiming to attain cost leadership is to become the lowest cost producer in comparison to the competitors. This is usually achieved by large scale production which enables the firm to attain economies of scale or by innovating the production process.

                    Acquiring quality raw materials at the lowest price is the basic goal of a cost leadership strategy. Further, there is an additional requirement of quality labour who’ll convert these raw materials into valuable goods for the consumer.

                  The expenses incurred by a business in the process of bringing a product or service into the market is known as the cost; while the money which the customers pay for that product or service is known as its price. The value of the price is usually higher than the value of the cost.Thus, the cost is the money which a company GIVES to the production and introduction of a product in the market (like labour, capital, materials, wages, bills, and other transaction costs). Whereas the price is the money which the company GETS from that product ( a total of the production costs and seller’s profit).

                   A cost leadership strategy works on the basic principle that more the number of units produced, lower will be the unitary cost. It exploits the scale of production, by producing highly standardized products using advanced technology. In short, a successful cost leadership strategy enables companies to sell more units sold at a lower margin per unit.

                    However, there are no shortcuts or escapes for a company aiming to achieve cost leadership in the long run. Either they have to commit to cost reduction or they lose the race.

                                        Here are a few cost leadership strategies through which one can establish and maintain an upper hand:

1. Economies of scale: Efficient production decreases the costs of production. Size of the company matters a lot when we talk about economies of scale. In short, larger the business, lower the costs.

2. Advantages of size: Increased purchasing power is a major outcome of the advantages of size. In short, more the money given to the suppliers, more the likeliness of extracting unique deals that become advantages.

3. Technology: Better and innovative technologies and methods of production are a major deal in cutting costs. In short, better the technology used by a business, more are its chances of staying a cost leader in the long run.

4. Focus: A company needs not to be huge to be a cost leader in the market. Even if a company manages to produce just one product, but with full focus and efficiency, it can manage to become the cost leader in that field of the market. In short, more the focus that a company renders to its good, more are its chances of becoming a cost leader in that domain.

5. Raw materials: Costs can be greatly reduced depending upon the amount of access a company has over the basic raw materials required for production. A company might pay huge sums for a particular resource, while another may not have to do so. In short, more the access of a company to potential raw materials, more are its chances of cutting costs as compared to competitors.

6. Operating efficiency: Getting more tasks done in comparatively lesser time and costs emerge as a golden way of increasing efficiency and also, cutting costs. In short, the lesser the amount of money and time that a company spends on getting a task done, more are its chances of coming out as an effective and cost-advantaged company.