Question

You have just been hired as an accountant by Marina Sport Technologies Pty. Ltd. Marina Sport Technologies was setup by Daniel Bryant, an engineer by training, in 2006 and has established a reputation for producing high quality and relatively inexpensive inflatable stand up paddle boards (more commonly known as iSUPs). When you arrived at work for the first time, you were shown into the office of Daniel Bryant. “Well,” he said. “I have heard quite a few good things about you, so let’s get you straight into the job. We have been in operation for close to 13 years now and I have never seen the need for an accountant. However, here you are, not only an accountant, but a management accountant, to boot. I need to know exactly what is a management accountant and how you can contribute to my company. I don’t mean to put you in a spot right now, so you can include that in the report that you will be sending me on a few other issues as well.” “The guys here have been telling me that you are the best candidate for the job, so there are several issues I need you to address. Firstly, Alistair Cook, my purchasing manager has informed me that one of our suppliers, namely Thejo Rubbers, is going into liquidation. They have excess stock of H-valves, which we use quite a bit of. However, my concern is how Alistair found out about Thejo going into liquidation. There’s nothing reported in the news as yet and no one else seems to know anything about it. I have heard that Alistair is seeing someone from Thejo, but I cannot confirm that. Is there anything wrong if we decide to proceed with the purchase of H-valves? We do not really need the stock right now, and we do not have spare cash lying around, but if the price is really good due to their liquidation, then it might make sense for us to buy them now. Can you work out whether there is any issue with this proposal from Alistair?” “Another issue we have is with our cash flow. We are really tight on cash as it stands, because a lot of it is tied up in the stock of iSUPs. Joseph Yarran, our production manager, is suggesting to us that we could potentially cut back on our maintenance schedules. We normally conduct quarterly maintenance on the equipment that we have, however, Joseph is recommending that we do it once a year as the machines are working fine and operating way below capacity anyway. I know that this is not in compliance with our maintenance schedule, but it will improve our cash position. Can you also work out whether there is anything wrong with us doing it as Joseph suggested?” “Finally, we have major issue that needs to be addressed. Gemma Nyoman, our software manager, is requesting to attend a users’ conference in Phuket. Normally she attends quite a few of these a year as she is responsible for identifying the right software for us. “ “We are currently in process of replacing our CAD-CAM* software and we have received bids from six different software firms. Gemma is reviewing these bids and will ultimately make a decision on which bid to proceed with.” “Horizon 1-2-3 is an aggressive software developer. Every six months, Horizon has a threeday users' conference in South East Asia. Each conference has substantial time allowed for ‘rest and recreation’. Horizon has offered Gemma an all-expenses-paid visit to the upcoming conference in Phuket, Thailand. Gemma believes it will be very useful to talk to other users of Horizon software, to determine its user friendliness and capabilities. She is especially looking forward to the visit because she has close relatives in the Phuket area.” “Now normally, I would just let her go on the conference. However, I have received an anonymous letter arguing that Horizon is receiving unfair, favourable treatment in our software decision-making process. The letter specifically mentions Gemma’s upcoming “allexpenses-paid package to Phuket during Australia’s cold winter”.”

“I have spoken to Gemma about this and she feels deeply offended. She says she has made no decision yet, and she believes that she is very capable of making a software choice on the merits of each product. And I do believe her. However, this letter is very troubling. Can you shed some light on this issue? Should I still allow Gemma to go to this conference? What are the pros and cons of allowing Gemma to go?” “Can you get me all of these in a report by 3 April 2019? I really do not want to read a thesis, so keep it succinct and concise, no more than 10-pages, double spaced. Thanks mate.”

Answer 1

Lets directly dive into the report,

1. Alistair, purchasing manager suggested to buy the stock of Thejo Rubbers since Thejo is going into liquidation. The big concern you have is she found out about the liquidation and whether is it worth to buy stock considering cash crunch. instead of buying the stock or not, the big question is if Thejo went out then where you will get the stock with reqired quality at competitive price.? So wider picture is not whether she is seeing someone, stock buying is good alternative, but it is how you will ensure continutiy of your manufacturing.

You can check internally, with other organisation who are Thejo's suppliers to understand how their dues are cleared and how much Thejo purchased recently. Which will give a fair idea on how things are. Later check with Thejo's competitors on their take about the industry and sector are they willing to offer you some good deal if you shift your whole business with them.

once you have enough information, if Thejo's is in a bad position, the interact directly with the management team and see what they are willing to offer if you buy the company. This way you do not have to rely on anyone and to overcome cash crunch you can get credit/loan from a bank.

If you find Thejo's not in a bad position, leave the thought to buy the stocks as you will not get at a lower price, and shift your focus why this information was shared by Alistair. She might be double crossing you.

2. Joseph, production manager suggested to cut back on maintenance and increase the gap b/w two maintenance. one of the most important thing is you cannot compromise in your product because if it affects the product quality then ultimately you would be having dissatisfied customer. It easy to get out of a cash crunch situation but its really difficult to regain the customer trust in quality if once lost. So would suggest to go with the decision only if does not affect the quality else take some overdraft from bank to finance the need. Further, you can increase the price of the product if this cash crunch is not cyclical in nature considering your industry, because finance is the blood of the business.

3. Regarding the concern over Gemma favoring Horizon, you can check what other suppliers are offering for the same type of product and check with the organisation who are into your industry what they are following and if majority are following Horizon no need to worry, but if majority are having relation with some other vendor than Horizon, you need to grill down a little more into Gemma's selection process and other vendor's proposal.