This paper aims to propose two recommendations for the Vice President of Claire’s Antiques after examination of the related information. The first recommendation deals with the role of performance measures in an organization and the second are on the functions of managerial accounting and the external uses of accounting.
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Analysis and Discussion
The role of performance measures in an organization
The role of performance measures in the organization is coined in the proposition that what can be measured can be managed and what cannot be measured cannot be managed. The organization’s management must therefore know where it is going and how far it has done so that it may direct its efforts toward the said objectives which must, by all means, be measurable. Objectives must therefore be expressed in terms of profitability, liquidity, and solvency (Meigs and Meigs, 1995) in order to monitor at what point the organization is performing. Its failure therefore to attain its measure objectives could mean failure to the organization.
It is evident from case facts that the Vice President of Claire’s Antiques is eager of increasing profitability, improving customer service, and expanding the business of the company. She has all therefore all the reasons to know performance measures for the company to attain the objectives. Her failure to examine financial statements issued to company shareholders would cause her to miss one of the more important functions of management — that is controlling the operation of business by attaining company objectives. It is therefore recommended that she orient and familiarize herself with performance measures that include profitability ratios, liquidity ratios, and solvency ratios.
A financially healthy company would be in the best position to improve customer service since it requires resources to deliver goods or services to customers. Expanding business could only be rooted as well in a profitable operation and strengthened by its liquid and solvent status.
The functions of managerial accounting and external uses of accounting.
The fact that the Vice President of Operations would like to meet measurable objectives as discussed earlier, it is also expected that she must understand management accounting if she is to attain profitable results. The functions of managerial accounting include providing management the necessary information for decision making particularly those that would help management in attaining corporate financial objectives on matters of managing the costs and revenues of every product or service delivered to customers by classifying them into a fixed and variable cost.
Case facts also cite the company’s problem on making a prediction on its production of antiques for sale where it’s making too few products could cause loss of expected revenues while overproduction could likewise cause a loss in terms of not being able to sell the same due to changing g tastes for customers. Selling at discount is therefore part of the company’s options just to sell the unsold ones and now the company wants to implement just in time inventory system as a way to reduce inventory cost.
Making a prediction of the number of antiques produced entails a significant knowledge of the cost of production by classifying them into a fixed and variable costs. Thus, it is recommended that knowledge and familiarity of management accounting must be acquired by the VP for Operations to enable her to understand the behavior of cost in relation to different levels of production (Meigs and Meigs, 1995) so that she may responsively decide whether to proceed with production in relation to demand.
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The external uses of accounting on the other hand are summarized in providing also information for decision-makers but this time, the decision-makers are external to the company. Thus these users include the creditors, investors, and all users other than management. These outside users have also their objectives to attain or goals to realize thus they also need reliable and timely information to allow them to make responsible decisions.
Case facts cite the company’s becoming recently a public company which enabled the company to issue stock on the stock exchange. This means that the external uses of accounting would be very relevant at Claire’ Antiques as management would have to convince investors that the company is worth investing in by possibly assuring them of increased wealth (Brigham and Houston, 2002) using as basis external accounting information provided to decision-makers to convince them. External accounting is represented by the company’s audited financial statements. It is likewise recommended that the VP for Operations has to understand the external uses of accounting since its effects on investors could determine the company’s capacity to raise capital to attain its plan to expand product distribution centers.
The VP of Operations is occupying a very important and strategic position in the organization. Her understanding and knowledge of performance measures as well as the functions of management accounting and external uses of accounting could only be made as a requirement from her if Claire’s Antiques would have to attain its business objectives.
Brigham and Houston (2002), Introduction to Financial Management, Thomson-South Western, USA Case Study – Claire’s Antiques.
Meigs and Meigs, 1995, Financial Accounting, McGraw-Hill, Inc., New York the USA.