Advanced management accounting case

Assignment Help Operation Management
Reference no: EM132274837

Case Study: Harwood Medical Instruments PLC

Advanced Management Accounting Case: Harwood Medical Instruments PLC (HMI), based just outside of Birmingham, England, manufactured specialty medical instruments and sold them in market niches that were becoming increasingly competitive and price sensitive because of pressures toreduce health care costs. HMI was organized into nine divisions each run by a general manager. Over the years, HMI had grown both organically and by acquisition. Six of the divisions had been acquired by HMI within the past decade. All of HMI's divisions sold medical products to hospital, laboratories, and/or doctors, so the need for product quality and reliability was high. The divisions varied significantly, however, in terms of the degree to which their success depended on, for example, development of new products, efficiency of production, and/or customer service. Bonuses for division general managers were paid semi-annually. Up to the year 2009, these bonuses were calculated as 1% of division operating profits. HMI's managing director, Andy Guthrie, had concerns though that the operating profit measure was too narrowly focused. He had been reading articles about performance measurement and decided to implement a "more balanced" scorecard. In November 2009, just before introducting a new bonus plan, Mr. Guthrie explained to his chief financial officer that he was willing to pay out higher bonuses than had been paid historically if improved performance warrantd doing so. The new plan provided a base bonus for division general managers of 1% of division operating profits for the half-year period. this base bonus was adjusted as follows: Increased by $5,000 if over 99% of deliveries were on time; by $2,000 if 95-99% of deliveries were on time; or by zero if less than 96% of deliveries were on time. Increased by $5,000 if sales returns were less than or equal to 1% of sales, or decreased by 50% of the excess of sales returns over 1% of sales. Increased by $1,000 for every patent application filed with the UK Intellectual Property Office. Reduced by the excess of scrap and rwork costs over 1% of operating profit Reduced by $5,000 if average customer satisfaction rating were below 90%. If the bonus calculation resulted in a negative amount for a particular period, the manger received no bonus. Negative amounts were not carried forward to the next period. Exhibit 1 shows results for two representative HMI divisions for the year 2010, the first year under the new bonus plan. The surgical Instruments Division (SID), one of HMI's original businesses, sold a variety of surgical instruments, including scissors, scalpels, retractors, and clamps. The markets for these products were mature, so growth was relatively slow. Not much innovation was needed, but controlling costs was critical. The Ultrasound Diagnosti Equipment division (Ultrasound), which was acquired in 2007, sold and serviced ultrasound probes, transducers, and diagnostic imaging systems. The ultrasound market promised excellent growth and profits if the division could keep its sophisticated products on the cutting edge tecnologically and control both product development and production costs effectively. In 2009, the total annual bonuses for the year earned by the managers of SID and Ultrasoundn were approximately $85,000 and $74,000, respectively. Operating results for the Surgical Instruments and Ultrasound Diagnostic Equipment Div, 2010 ($ in 000s) Surgical Instruments Div. Ultrasound Diagnostic Equip. Div 1st half of 2010 2nd half of 2010 1st half of 2010 2nd half of 2010 Sales $42,000 $44,000 $28,600 $29,000 Operating profit $4,620 $4,400 $3,420 $4,060 On-time deliveries 95.4% 97.3% 98.2% 94.6% Sales returns $450 $420 $291 $289 Patent applications filed 0 1 4 8 Scrap and rework costs $51.1 $45.0 $39.7 $28.2 Customer satisfaction (average) 78% 89% 81% 91% The case describes a company whose manager is concerned that the operating profit measure included in the company’s bonus plan was too narrowly focused. He implemented a new bonus plan that reduced the weighting of importance placed on operating profit and that included more measures, including on-time deliveries, sales returns, patent applications, scrap and rework costs, and customer satisfaction.

1. What was the purpose of the change?

Reference no: EM132274837

Questions Cloud

What would you recommend to address earth growing population : We know that the Earth has a carrying capacity but we really don't know what size population the Earth can support before suffering deterioration.
Imagine scenario in real-world workplace environment : Imagine a scenario in a real-world workplace environment that you are familiar with where you have to apply critical thinking to determine a logical solution
Compare and contrast the parties goals in that area : How effective each party's goals are likely to be in mobilizing voters to support the party's candidates on the national level.
What do you think is the value of reading political theory : What do you think is the value of reading/ studying political theory? Even if you don't know much about political theory, please do not use outside sources.
Advanced management accounting case : Advanced Management Accounting Case: Harwood Medical Instruments PLC (HMI), What was the purpose of the change?
Generate the histogram : You may optionally use the Palisade DecisionTools Excel software to generate the histogram. Use Palisade DecisionTools Excel software to complete the problem
Maximum asset to capital ratio that a regulator : If we lived in an economy where interest rates were highly volatile, would you expect the maximum asset to capital ratio that a regulator would allow
Summarize recent developments in several states enacting : Share your own experience with the relative difficulty or ease of voting in your locale. Draw your own conclusion about the debate over voter ID laws.
Who are the people who live in your region : Who are the people who live in your region? Are they native or immigrant, and what is the impact on the region because of this?

Reviews

Write a Review

Operation Management Questions & Answers

  Book review - the goal

Operations Management is about a book review. Title of the book is "Goal". This book has been written by Dr. Eliyahu Goldartt. The book has been appreciated by many as one of those books which offers an insight into the operations and strategic capac..

  Operational plan in hospitality enterprise

Operational plan pertaining to a hospitality enterprise is given in detail in the solution. The operational plan is an important plan or preparation which gives guidelines regarding the role and responsibilities of each and every operation at all lev..

  Managing operations and information

Recognise the importance of a strategic approach to the development and deployment of organisational information systems. Demonstrate an understanding of the importance of databases and their integration to the organisation's overall information mana..

  A make-or-buy analysis

An analysis of the holding costs, including the appropriate annual holding cost rate.

  Evolution and contributor of operations management

Briefly explain Evolution and contributor of Operations management.

  Functions and responsibilities of an operations manager

A number of drivers of change have transformed the roles, functions and responsibilities of an operations manager over recent years. These drivers have not only been based on technological innovations but also on the need for organisations to develop..

  Compute the optimal order quantity

Compute the Optimal Order quantity of DVD players. Determine the appropriate reorder point.

  Relationship to operations practice in the organisation

Evaluate problems in operations and identify approaches to overcoming them. Critically evaluate operating plans and identify areas for improvement. Justify, implement and evaluate changes to operations in line with modern approaches.

  A make or buy analysis

Develop a report for Figi Fabricating that will address the question of whether the company should continue to purchase the part from the supplier or begin to produce the part itself.

  Prepare a staffing plan

Prepare a staffing plan showing the change of your unit from medical/surgical staffing to oncology staffing.

  Leadership styles in different organizations

Ccompare the effectiveness of different leadership styles in different organizations

  Risk management tools and models

Be able to understand the concept of risk, roles and responsibilities for risk management and risk management tools and models.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd