Management accountability to stakeholders and corporate social responsibility

Management accountability to stakeholders first requires consideration of who those stakeholders are. When considering financial accountability, the primary defined stakeholders for annual reports are the shareholders or owners of the firm (Elliott and Elliott, 2013). Therefore, this establishes the need for management accountability towards this group of stakeholders, the process which is satisfied not only for annual accounts, but also from quarterly earnings as well as other statements. However, there are other stakeholders which will have a direct impact on the firm, and either directly or indirectly influence their performance. This includes, but is not limited to, government, customers, and suppliers.

Government accountability requires a firm to demonstrate for compliance with regulation, and where governments are not fully satisfied that firms are acting in an appropriate manner, they are likely to introduce more legislation. Customers will have needs regarding the products and services they purchase, this will not only be related to the product's features and characteristics, but the perceptions of the firm and way in which they provide those products. For example, when Shell chose to dispose of the Brent Spar oil platform in the North Sea, the company faced a backlash from customers refusing to buy their products believing the company was acting in an irresponsible manner, causing environmental pollution (Chyssides and Kaler, 1999). Therefore, management accountability can extend to aspects such as corporate social responsibility, firm values, as well as firm image, and the way in which this is displayed to and demonstrated to all stakeholders, including customers.

Part B

An organisation such as GDC needs to ensure they keep the most important stakeholders happy, otherwise they will suffer. However, it should be noted that not all stakeholders will have an equal level of influence over the firm's operations and performance. To retain sales, it is essential that the organisation satisfy customer needs, regarding products, as well as values and operational decisions (Chyssides and Kaler, 1999). To continue operating, it is essential that the organisation is able to satisfy government requirements and regulations, otherwise they will face significant financial consequences such as fines, and may even be shut down (Mintzberg et al., 2008). If the company does not satisfy supplier needs, they may lose a supplier, but here there is also the potential for the organisation to use their own power, as this is a bilateral relationship, and suppliers may also need the company. Secondary stakeholders, such as local residents, may be able to exert influence over the organisation, but it may be less direct, for example it may be felt if the organisation seeks to extend the offices, as local residents may object using local planning processes.

Question 3

Part A To calculate the break even point it is necessary to calculate the contribution of each unit (that is the revenue less the direct costs), and then calculate how many units need to be sold to cover the indirect or overhead costs.

The first we calculate the contribution per unit.

Direct materials

24

Direct labor

70

Total direct costs

94

Revenue per unit

Contribution per unit

36

Now we add together the total overheads, and divide those by the contribution per unit to assess the number of units needed to be sold to breakeven.

Factory fixed overheads

120,000

Selling and distribution overheads

160,000

Administration overheads

80,000

Total overheads

360,000

Contribution per unit

36

Unit sales to cover overhead (Breakeven point)

10,000

Part B

Contribution

36

Selling price

Contribution margin

27.69%

Part C

Contribution for 20,000 units

720,000

Overheads

360,000

Profit

360,000

Part D

Here the calculation is reversed, and the required profit is added to the overheads, and used to calculate the number of units should be sold to reach the desired contribution level to cover the overheads and reach the desired profit.

Required profit

720,000

Overheads

360,000

Total level of contributions required

1,080,000

Contribution per unit

36

Number of units to be sold

30,000

Part B

Question 1

Sales budget

The sales forecast assumes that there are no discounts or allowances being given to purchasers, otherwise these would need to be deducted from the gross sales.

Quarter 1

Quarter 2

Quarter 3

Quarter 4

Forecast unit sales

4,000

4,800

9,600

9,200

Price per unit

1,000

1,000

1,000

1,000

Gross sales

4,000,000

4,800,000

9,600,000

9,200,000

Production budget

The production is based on the sales forecast, and the assumption that the organisation wishes to ensure there is a buffer in inventory 25% of units needed ready for the following quarter.

Quarter 1

Quarter 2

Quarter 3

Quarter 4

Forecast unit sales

4,000

4,800

9,600

9,200

Plus buffer (ending units)

1,200

2,400

2,300

2,600

Total units required

5,200

7,200

11,900

11,800

Less opening inventory

1,200

2,400

2,300

Units to be manufactured

4,600

6,000

9,500

9,500

Question 2

Return on investment is a ratio that indicates the level of return is (profit) that is created through the use of an investment, in this case the investment are the assets.

Operating income

Average total assets

Return on investment

Division A

225,000

2,250,000

10.00%

Division B

250,000

2,000,000

12.50%

Division C

450,000

4,000,000

11.25%

Question 3

Return on investment has a number of advantages and disadvantages.

Advantages

Return on investment allows for an effective measure profitability, allowing an organisation to assess performance based on the assets they are using to create a profit (Elliott and Elliott, 2013). This helps to ensure investment decisions are made so that assets can be maximized (Bodie et al., 2014).

Return on investment can help with decision-making and internal assessment, by facilitating a comparative analysis, even within the organisation across different products or divisions, or for benchmarking within an industry (Seal et al., 2011).

Return on investment may also be used to identify areas within a firm where there are particular weaknesses in performance, for example poor use of individual assets, and therefore aid with business improvement processes.

It may also be argued that this is a measurement that facilitates the bringing together of many different important elements of organisational performance, including control of profit, profit goals, and sales objectives (Seal et al., 2011).

Disadvantages

The measure may be subjective or skewed due to the underlying input figures, especially where there is a great level of volatility in values. This is partly addressed through the use of average asset values over a period, but variations in valuations may lead to inaccurate results (Seal et al., 2011).

There are different methods of calculating some of the input figures, which will lead to varying results, indicating it is not a uniform measure (Elliott and Elliott, 2013).

No organisation should only utilise a single performance measure for assessing performance and making decisions, therefore, this may provide some benefit, but should not be used in isolation, especially if managers are seeking to improve overall value of the firm in both the short- and long-term.

There may be a lack of agreement with in management and other stakeholders regarding the optimum level of return on investment that should be achieved, this may lead to disagreements. This may be particularly pertinent when considering the renewal of assets and further investments.