Reference no: EM132621452

'COLA' is a manufacturer, retailer, and installer of a Split AC for industrial buyers. It started business in 2001 and its market segment has been low to medium level groups. The Company produces three types of ACs - COLA, FANTA and SPRITE grade. Until recently, its business model has been based on selling high volumes of a standard AC, brand name 'HEAT', with a very limited degree of customer choice, at low profit margins. 'COLA''s current control system is focused exclusively on the efficiency of its manufacturing process and it reports monthly on the following variances: material price, material usage and manufacturing labour efficiency. 'COLA' uses standard costing for its manufacturing operations. In 2018, 'COLA' employed 20 teams, each of which is required to install one of its 'HEAT' AC per day for 350 days a year. The average revenue per 'HEAT' AC installed is Rs 36,000. 'COLA' would like to maintain this side of its business at the current level. The 'HEAT' installation teams are paid a basic wage, which is supplemented by a bonus for every AC, they install over the yearly target of 350. The teams make their own arrangements for each installation and some teams work seven days a week, and up to 12 hours a day, to increase their earnings. 'COLA' usually receives one minor complaint each time a 'HEAT' AC is installed and a major complaint for 10% of the 'HEAT' AC installations.

Problem 1) EVALUATE the appropriateness of 'COLA''s current control system.

Problem 2) ADVISE 'COLA' about the changes it could implement in its standard costing and reporting system to achieve improved control.