Hasfhi Rahmat

1121002033

Case 4-6

Grand Jean Company

Questions:

1. How would you describe the goal(s) of the company as a whole? Is this, or are these, the

same as the goal(s) of the company’s marketing organization and the company’s 25

managers of manufacturing plants? Explain.

Answer:

The main objective of the company is to increase profitability and achieve high growth.

The company is striving hard to achieve cost effectiveness and achieve high level of

quality. Now, the goals of the company’s marketing organization and company’s 25

managers of manufacturing plant are different.

The marketing division is treated as a “Revenue Centre” so the goal of the

company’s marketing organization is to maximize revenue and sell the products. They are

evaluated on the basis of meeting the set sale unit and sales targets. They are responsible

for making demand forecasts which are used to decide the production levels of each plant.

Whereas, the manufacturing plant have the goal to just meet the budget figure and fulfill

the quota allocated to each plant. Since they are considered as an expense center and there

is no immediate monetary reward to compensate for increase in responsibilities or

requirements, they are not concerned to achieve higher efficiency and thus, want to

exceed the targets.

2. Evaluate the current management planning and control system for the manufacturing

plants and the marketing department. What are the strengths and weaknesses?

Strengths:

a) The company has been profitable for a long time.

b) The company has 25 manufacturing units of its own and 20 independent

contractors producing efficiently and reliably for them.

c) They have developed a learning curve to develop the production’s standard hour.

d) 1-to-5 scale reward system can motivate employees work harder.

e) Use budgeting to set the quota, which can evaluate the performance easily.

Weaknesses:

a) There is no incentive to the manufacturing plants to exceed production. Rather, it

makes the things difficult for them as they have to meet increased quota and have

thus resorted to “Hoarding” of stock even if there is enough demand.

b) Standard hour’s calculations are done on same scale for new and old machines,

which hence produces inaccurate results.

c) They are highly dependent on the outside independent contractors who provide for

approximately one-third of the total pants sold by them.

d) The reward system is not fair. The people who work at the headquarters are

awarded higher rating than the plant managers.

3. One plant manager recommended that plants be operated as profit centers because it

would overcome some of the problems discovered by Mia Packard and the case writer.

This plant manager commented, “[My] competitor is the nearby independent

manufacturer that makes the same pants for Grand Jean as my plant makes. And this

outsider might also make pants for Grand Jean’s competitors. Because of the competitive

market, only the best managed plants survive in this business. Therefore, like the outside

company’s manager I should have bottom line responsibility and be rewarded

accordingly.” Do you agree or disagree with the profit center concept for Grand Jean’s 25

manufacturing plants? How would this approach affect the plant manager’s decisions,

performance, etc.?

The manufacturing plants have the goal to just meet the budget figure and fulfill

the quota allocated to each plant. There is no incentive to the manufacturing plants to

exceed production. Rather, it makes the things difficult for them as they have to meet

increased quota and have thus resorted to “Hoarding” of stock even if there is enough

demand. Since they are considered as an expense center and there is no immediate

monetary reward to compensate for increase in responsibilities or requirements, they are

not motivated to achieve higher efficiency. But the manufacturing plants are considered

as a Profit Centre, the plant manager will be able to earn incentives through higher

efficiency. He will be motivated to work efficiently and produce at peak levels.Also

they’ll not restrict themselves to the plant quota and would not hoard the excess

production; rather they’ll make full use of this extra production and gain maximum

monetary rewards. A change in the reward system would encourage the plant managers to

push to maximum production and also to minimize the cost, time and effort to produce

efficiently.

4. If Grand Jean’s manufacturing plants were treated as profit centers, three alternatives

were suggested for recording revenues for each plant:

a. Use the selling price recorded by Grand Jean’s sales personnel for pants sold to

retailers and distributors

b. Use full standard manufacturing cost per unit plus a “fair” fixed percentage

markup for gross profit

c. Use the average contract price Grand Jean paid outside companies for making

similar pant types

Evaluate these three alternatives. Which one would you recommend? Why is your

selection the best one?

Considering the three alternatives given to us the best one would be the cost plus

fixed margin (Alternative 2). All other options don’t fit well in the situation of Grand

Jeans. Moreover, the manager of manufacturing and sales may sit down and negotiate

and reach at a consensus. This price could be between the cost plus margin price and

selling price of the sales department. At this price the sales department will have

sufficient margin as well as manufacturing department will have good incentives to do

well.