Question

Discuss the following questions relating to the Waltham Motors Case: Assessment based on Current Cost Control System Need help with the frame work of the two questions below pertaining to Waltham Motors Case- 1. What is your opinion on the report that was presented by accountant? What actions would it promote for the employees responsible for the results?

2. What would be the risks of making decisions based on the report by the accountant?

Answer 1

1)First off, the report presented by the plant’s accountant is oversimplified and thus is not comprehensive and exhaustive enough to make accurate managerial decisions.

It doesn’t, for example,state the actual and standard/budgeted priceper unit of input material, which is very crucial to perform the variance analysis.

With the unit input price known, variance analysis is better computed and caneasily be used to breakdown what exactly caused the observed variances in directmaterial and labor costs as well as in operating income/loss.

The report shows considerable, unfavorable budget variances. The budget variances could mean that the accountant wasn’t able to accurately estimate and predicate future expenses and sales. This could be because of either errorin estimation, changing business conditions, or unmet expectations--or all.

As waltham motors has been acquired by macro corporation , its to be expected that changing business condition could very well be one major factor that resulted in the observed budget variance.

2)The risk of entry in an industry depends upon the peak of entry barriers and limitations that are blessing for waltham motors and on the response that new entrants can count on from existing companies.

If entry barriers are low novices count on little retaliation from the entrenched competition , the chance of entry is high and profitability for waltham motors will be moderated.