Question

Modern Limited.

The Company

Modern Limited is a family-owned and managed, department store situated in Breezyfield, a city in the North of England. The store was established some sixty years ago by the current owner’s father, who passed on the business to his three sons on his death. All three sons are still deeply involved in the running of the business, even though they are now in their sixties, and none of them have children to whom to pass on the business. The Store occupies 100,000 square metres of the main shopping district in the city centre. The management team of Modern Limited pride themselves on running a store which retains the standards of service and customer relationships usually associated with a bygone era.

The Store has four retailing departments (Furnishings, Kitchenware, Menswear and Toys) and a Restaurant. Each department is managed by a department manager and recently Alison was appointed to the post of departmental manager of the Toy Department. She is in her early thirties and is studying on a part-time basis at Sheffield Hallam University for a degree in Accounting and Management Control (she is currently in her final year).

Alex is the departmental manager of Menswear and he is also Alison’s great uncle. He used to be a Sergeant in the Police Force and will be celebrating his 65^th birthday shortly. Alison and Alex do not agree on many issues and often argue. Kitchenware is managed by Joshua and Furnishings is managed by Simon. Joshua and Simon joined the Store round the same year, beginning their careers in retailing as junior assistants and working their way up to their current management roles. Both are now in their middle fifties and pride themselves on knowing their regular customers by name.

Sam, who previously worked for Modern for a number of years as a chef, was promoted to manager of the Restaurant some time ago. Sam achieved some fame a number of years ago when he entered and won a potato-sculpting competition. His prize was an all-expense-paid weekend in Paris and was interviewed by Yorkshire television. This attracted favourable publicity for Modern Limited. However, Sam does have an explosive temper and has been known to ‘lash out’ at his two assistants, Tracy and Peter. He sets very high standards for the restaurant and will throw away cooked dishes which do not meet these standards. He spends the majority of his time in the kitchen and intensely dislikes ‘paperwork’, constantly complaining that it stifles his creativity. The ‘French Cuisine’ menu offered by the restaurant is extensive and creative, but it is generally felt within the company that the prices charged sometimes barely cover the food cost, although this cannot be substantiated because information is not collected.

Sam revises menu weekly, ordering food supplies from local suppliers on a daily basis. There is no stock control system in operation in the Restaurant. The kitchen equipment is quite old and has not been regularly maintained. For example, the dough mixer keeps breaking down and the safety catch on the steamer is missing.

Sam claims that, if he were given additional capital to refurbish and equip the kitchen, he would be able to generate even more business for the Restaurant. In addition, new European Union regulations concerning cook-chill facilities mean that Modern Limited will soon have to spend a considerable amount of money in upgrading the kitchen’s food keeping facilities.

The storage of stock presents problems for Modern Limited Merchandise and stock is delivered to one store-room for all departments other than the restaurant, where deliveries are made directly to the kitchen area. Deliveries are not checked or counted in any way and items are placed on any shelves which are free. As a result, staff often find it difficult to locate products and thus customers are often left waiting for long periods. All staff are allowed into the stock-room and, on odd occasions, customers have been known to wander in by mistake.

All records of the Store are maintained on manual systems.

Recent Events

In the past the store has operated profitably. However, the most recent financial statements revealed a small loss for the previous trading period. This came as quite a shock to the owners and is causing great concern.

Prior to this news, and in a move which seems to have been totally unrelated to it, the family members decide to appoint a Managing director in order to take some of the workload from their own shoulders. They appointed Vijay as the Store’s first Managing Director and when he takes up his appointment he will be the first ‘non-family’ member to be employed in a senior managerial role. He is well qualified for the job, having gained valuable retail experience with Sparks and Mentin plc, a leading department store chain with a first class management training programme and an excellent growth and profits record. His first post with Sparks and Mention plc was as a graduate trainee and he progressed to store manager of one of the company’s stores in the affluent South East of England.

As a result of the reported loss for the previous trading period, the family member called a meeting of the store’s employees to discuss the situation. This type of meeting was unprecedented in the history of the Store. Prior to the meeting, a suggestion box was set up and attendees were asked to put forward suggestions for improving the profitability of the Store.

One suggestion for improving the profitability of the Store was the closure of the Toy Department, another suggestion was the closure of the restaurant and a third suggestion was an across the board price reduction of 5% in order to stimulate demand. In each case the source of the suggestion was not identified.

Unfortunately, when the family members asked for information to assist in evaluating these suggestions, this was hampered by the lack of management information produced within the company. Apparently, the recording systems were geared to maintain records for government regulatory bodies, such as Customs and Excise and the Inland Revenue, and to assist the company secretary in the production of the year-end financial statements.

Since Alison is studying for an accounting degree, she was asked to tackle the job of seeking out information which might be helpful. The information she produced is set out below. It identifies revenues and costs incurred during the previous trading period. The family members were so impressed with the information she produced that they asked her to consider taking on the additional role of management accounting in the company.

Departments
	Furnishing $000	Kitchenware $000	Restaurant $000	Menswear $000	Toys $000
Sales	550.0	970.0	400.0	420.0	670.0
Purchases for resale	400.0	680.0	325.0	229.0	560.0
Opening stock	250.0	63.0	24.5	27.0	197.0
Closing stock	263.0	53.0	24.0	25.5	229.5
Non-management wages	65.0	45.0	101.0	65.0	95.0
Departmental expenses	20.0	10.0	16.5	4.0	20.0
Sales promotion cost	14.0	2.0	nil	1.0	20.0
Per cent of floor space occupied by department	20	20	15	35	10

Alison has looked into the behaviour of these costs at different sales levels. Purchases of goods for resale in all departments varied proportionately with the level of sales. Additionally, due to the staffing policy of the company (see note on staffing policy below), so did the wages of non-management staff. Departmental expenses (for instance, wrapping paper for goods purchased, cleaning of staff uniforms) were also considered to vary with the level of sales, and there seemed to be a direct correlation between sales promotion costs in the departments and the increase in sales. Other costs totalling $400,000 (not included in the above schedule) were considered not to change with sales levels and some of these costs could not be directly related to individual departments.

Note on Staffing Policy

The company staffs all the Departments by using a core of full time staff to cover a minimum demand level and a flexible workforce of part time staff to work as and when required, with no guaranteed minimum or maximum number of hours for part-time staff.

Question:

(a)   (i) Identify the problems which Alison would need to address in her new role as Management Accountant at Modern Limited.

(ii)Explain the main factors which will influence the design and implementation of a Management Information System for Modern Ltd.

Answer 1

a)

i) Problems which Alison would need to address:

Firstly the Stores Room should be sorted out with the stock of each department so that it should be easy to issue the stock to respective departments

To improve the Profitability of departments,Alison should focus on the Variable costs such as Non-Management wages,Departmental Expenses since they have correlation with the sales made.

Ensure there should be Proper Internal control system for tracking the stock movement which is currently maintained in Manual Register to be changed to Automised Inventory Tracking so that we can find the Inventory lost by Pilferage or it is Normal loss easily.

Each department should produce only to the extend of demand from the Customers there should not be Piling up of Inventory since it inceases the cost of holding Inventory Cost which reduces Profitability.Therfore Alison has to implement Just in Time Inventory System in the Organisation

Alison should Consider the 5S in the Organisation so that there will be Proper Tracking system.

ii)

Technological Factors:

In technological dimension, three variables are suggested: system quality, information quality, and service quality.

The quality of the system and quality of the information are considered as a key factors affecting IS acceptance and improve the organizational performance .

System quality is the desirable characteristics of information system. For example: ease of use, system flexibility, system reliability, and ease of learning, as well as system features of intuitiveness, sophistication, flexibility, and response times

Organizational Factors:

In organizational dimension, two variables are suggested: top management support, and end-user training.

Management support refers to the perceived level of general support offered by top management in small firms. For example: management is aware of the benefits that can be achieved with the use of system, management always supports and encourages the use of system for job-related work, management provides most of the necessary help and resources to enable people to use system, management is really keen to see that people are happy with using system, management provides good access to hardware resources when people need them, and management provides good access to various types of software when people need them

People Factors:

In people dimension, two variables are suggested: computer self-efficacy, and user experience.

Computer self-efficacy refers to an individual’s belief that he or she has the skills and abilities to accomplish a specific task successfully . Self-efficacy is measured using items such as: I can understand how the system work, and I am confident that I can learn how to use the system