Chief Executive Officer CEO of Durango Manufacturing Company

1. As the consultant, create an argument that you will present to the CEO that suggests accounting and financial management knowledge and skills will be essential to the company’s success and stability over the next five (5) years. Provide support for your argument.
As a consultant to the Chief Executive Officer (CEO) of Durango Manufacturing Company, I have established that the firm has a weakened pecking order in terms of accounting and financial structure, lack of proper segregation of duties, lack of properly delineated responsibilities, lack of highly trained and proficient medium level and high level managers. Accounting and financial management knowledge and proficiencies will be pivotal to the success and stability of the corporation over the next five years.
The first individual within the structure is the accounting manager or controller. This position usually deals with responsibilities for all activities associated with accounting. These duties more often than not comprise of financial accounting, cost accounting, taxes, as well as data processing. It is imperative to note that accountants are liable for the development of financial reports and metrics, their proficiency and competencies aid managers in the assessment of previous performance and future direction of the company and accomplishing particular legal obligations like being compliant with SEC regulations and the Sarbanes-Oxley Act.
There is the financial manager or treasurer who is higher up the pecking order. This individual is usually concerned with the procurement, custody, and expenditure of finances. The responsibilities comprise of financial planning, capital budgeting analysis, management of cash and marketable securities in addition to credit analysis. Imperatively, a financial manager fundamentally deals with the cash flows of a corporation. The financial manager is of great importance to a firm owing to the fact that cash flows are a determining factor of the feasibility of particular investment and financing decisions. Furthermore, a financial manager has great competence regarding the impact of monetary policies on the accessibility of credit and also cost of funds. Therefore, this is beneficial in guaranteeing that the firm has the ability to borrow for new projects or other outlays (Brigham and Ehrhardt, 2011).
2. Suggest to the CEO how the company’s stakeholders (investors, lenders, and employees) will use financial statement information and ratio calculations to make key determinations related to the financial condition and operational efficiency of the company. Provide support for your rationale.
Financial statements and financial ratios are imperative to different corporate stakeholders to make important determinations associated to the financial condition as well as operational efficiency of Durango Manufacturing Company. The employees use financial statements in order to have a better understanding of the business, how to improve it in general and also to increase the level of employee engagement. Investors are essentially the owners of the company. Taking this into consideration, financial statements and ratios are important in order to comprehend the performance of their investment. For instance, the investors will examine profitability ratios such as profit margin and return on equity to determine the financial performance of the company in terms of the returns generated from the investment. In addition, lenders necessitate financial statements so as to approximate the capability of the company to reimburse all of the loaned finances and associated interest charges. Basically, lenders want to make certain that the company is able to pay back the funds. In this regard, the lenders examine the profit generated by the company and also liquidity ratios. Liquidity ratios such as quick ratio and acid ratio make a determination of whether the company is able to pay its debt obligations. Other key stakeholders that necessitate the financial statements of the company are management. The management team necessitates to comprehend the profitability, liquidity, and cash flows of the business on a monthly, quarterly or yearly basis, in order to make operational and financing decisions about the business (Weygandt et al., 2012).
3. Given the strategy to increase revenue during the five (5) year plan period, which will need to be achieved through expansion and capital expenditures, determine which capital budgeting ratio is appropriate for Durango to evaluate its proposals for capital expenditures, such as NPV, IRR, etc. Defend your position.
The capital budgeting ratio that is suitable for Durango to examine its proposals for capital expenditures is net present value (NPV). The net present value rule is the notion that corporate managers and investors ought to solely invest in projects, or take part in transactions that have a positive net present value (NPV). They ought to evade making an investment in projects that have a negative net present value. The assessment of the NPV of a project must incorporate computing the project’s future net cash flows, discounting these at the appropriate cost of capital to attain their present value, subtracting the initial capital cost or net investment expenditure, at the project commencing period. The NPV makes the assumption that cash inflows will be invested back at the similar rate that is the necessary rate of return or the rate at which cash inflows are discounted (Drury, 2004). NPV has a number of features which meet the requirements of making it be deemed as the best method. These take into account that NPV measures profitability of a corporation and can facilitate the adjustment for risk, takes into account all cash flows, alters for time value of money, is in line with the wealth maximization goal and makes realistic suppositions regarding the reinvestment of intermediate cash inflow (Bhandari, 2009).
4. In order for the company to improve its operational efficiency, recommend which production departments should use process, job order, and activity-based costing—all three (3) of which must be implemented within Durango. Defend your choice for each department.
A great deal of corporations employs a process cost system when partaking in the manufacturing of large volume of products that are similar. Imperatively, the production undertaking is an incessant practice and therefore process costing amasses product associated costs for a period of time rather than assigning and allocating costs to specific products. Taking this into consideration, it is deemed that for the newly planned manufacturing facility for Durango, the corporation should use process costing system. Secondly, one of the significant costs incurred by the company is wages and salaries for employees. It is recommended that Durango manufacturing company should employ activity based costing system to facilitate the tracking of wages. This approach is considered to be progressively more efficacious for the company owing to the reason that it gives rise to increased control over overhead expenditures (Weygandt et al., 2012).
5. The CEO would like to consider outsourcing his manufacturing operations if labor can be supplied cheaper overseas than in the U.S. Create an argument either for or against outsourcing the manufacturing operation to a foreign country. Your argument should include key points that support your position. The key points should address economic and business management aspects related to outsourcing.
One of the key considerations that companies have to contend with is whether to partake in internal manufacturing or outsource such work to external vendors. The CEO of Durango Manufacturing Company is taking into consideration outsourcing the manufacturing operations of the company if the supply of labor is cheaper overseas as compared to the United States. There are arguments for and against the company outsourcing the manufacturing operations.
Arguments for Outsourcing
i. One of the key arguments for outsourcing the manufacturing operations is that it can increase the profits generated by the company. In general, firms make the decision to outsource the manufacturing of goods and services if there is the perspective that it will result in cost savings, and therefore increase firm profits. For instance, through cheaper labor, the company is able to reduce the expenses incurred and therefore increasing the profit levels. Some of the reduced expenses comprise of training and employing in-house personnel. Labor costs incurred are significantly diminished. Recruiting, employing, and training an entire workforce can be costly. Worse, temporary personnel do not always match or accomplish the expectations. As a result, outsourcing makes it possible for the firm to lay emphasis on human resources and utilize them where necessitated the most (Brigham and Ehrhardt, 2011).
ii. A second argument for outsourcing is that it can increase economic efficacy. At times, corporations engage in outsourcing for the reason that the opportunity costs of manufacturing a product or service by themselves. When highly competent and proficient individuals are able to outsource tasks that are of lower value and spend a greater amount of time on high-value tasks, companies have a tendency to profit. Furthermore, outsourcing can result in an increase in general efficacy within the organization through the distribution of tasks to individual who have the suitable skill level for such tasks and permitting highly skilled personnel to be more productive.
iii. An additional advantage of outsourcing takes into account skilled workforces. Outsources labor, particularly overseas more often than not encompasses technically proficient, highly educated and trained workers who are willing to work for a lower price (Strain, 2018).
Arguments against Outsourcing
i. Quality concerns are one of the shortcomings of outsourcing. Corporations that outsource manufacturing could risk losing control over the quality of the products being retailed. This is largely for the reason that outsourced vendors might try to use the easier way out through inferior raw materials and production processes. Despite the fact that this may diminish the operating expenses, the company will have to deal with consumer complaints and in the end may lose a consumer base and tarnish its brand image (Kraft, 2018).
ii. The second disadvantage of outsourcing is delivery. It is imperative to note that outsourcing takes control of demand scheduling and delivery programing from the hands of the company. Planning manufacturing to satisfy projected demands is an intricate and engaging process. If undertaken wrongly or inefficaciously, lack of suitable raw materials can halt the manufacturing process. Subsequently, when production ceases, then delivery also ceases and this implies that sales are not done (Somjai, 2017).
iii. A significant problem that is presented by outsourcing is logistics. Reliant on the products and where they are manufactured or produced, the logistics of delivering them from the outsourced vendor to the consumers can bring about major problems.
iv. The cost of labor is an additional problem of outsourcing. Despite the fact that labor is beneficial, it can also be a shortcoming. The cost of labor is a key factor in outsourcing decisions, but it may not be a stable expense. Nations that provide low labor costs in the present moment could face economic shifts, resulting in the proliferation of such costs. Considering outsourcing is on a contract basis, the company cannot simply live but rather has to bear it out (Kraft, 2018).
6. Predict the economic and business environment over the next five (5) years, indicating at least two (2) ways it may impact Durango Manufacturing Company’s ability to achieve the desired 10% growth in revenue. Provide support for your prediction.
The economic and business environment is without a doubt expected to change over the next five years. From an economic standpoint, it is projected that the gross domestic product (GDP) of the nation will increase steadily over the next five years. This implies that the economic condition is suitable for the business to grow and thrive. In the same manner, it is projected that there will be a greater level of exportation and the inference of this is that the market will be prime for Durango Manufacturing Company to export its products and therefore generate greater revenues. This will facilitate the company to realize its objective of 10 percent growth in revenue. With respect to the business environment, it is projected that there will be advanced technology. The advancement of the internet and the progression of the technology in the present moment is expected to increase in the coming years. Therefore, the company will be able to capitalize on such advanced technology to not only create products of greater quality but also do so in an efficacious and efficient manner (World Bank, 2018).
7. Formulate a strategy to improve the opportunities for Durango to reach its revenue goals (i.e., increase revenue by 10% within five [5] years).
The revenue goal for Durango Manufacturing Company is to increase the revenue generated by 10 percent within a period of five years. One of the key strategies that the company can undertake is to take up venture capitalists while transforming into a fast growing company. A venture capitalist would be suitable for this particular company in order to facilitate the retaining of the stakeholders as it transitions through its growth stage as it obtains equity funding. Through this funding, the key strategy is for the company to open another manufacturing facility that will enable the company to sustain its demands level during its growth phase. In order to generate higher revenues, it is imperative for the company to increase its sales and this can be facilitated through having an additional manufacturing facility (Weygandt et al., 2012).
8. Assess the potential for fraud within Durango based on the lack of IT controls, and determine at least two (2) ways Durango will structure its internal IT controls to ensure that such controls are effective in detecting fraudulent transactions.
IT controls are the processes or the policies that provide a sensible guarantee that the information technology used by an organization functions as purposed, that data is dependable and that the organization complies with the applicable regulations and laws. There is a high potential for fraud within companies that lack IT controls. In fact, statistics indicate that companies lacking IT controls experience projected losses of almost 2 percent. Examples of fraud that are most likely to take place in such an organization include corruption and billing schemes. Imperatively, these schemes can occur on the basis of the data that is input into the systems of the corporation and the manner in which a lack of accessibility, approval controls as well as management oversight can facilitate them. Basically, billing schemes are frauds that attack the payments system of a corporation. They are designed to cause the company to make a fraudulent payment to an individual while recording such a payment as a legit corporate expense. Usually, this can be undertaken owing to lack of IT controls through the manipulation of the approval and payment processes of the company (Singleton and Singleton, 2010).
The company can structure its internal IT controls to make certain that such controls are efficacious in detecting fraudulent transactions. Management of Durango ought to sustain a proactive approach to ascertaining susceptibilities distinct to their organization and carry out effective and efficient internal controls to help in the prevention and detection of fraudulent activities. One of the key ways is ensuring that there is separation of duties. This is to guarantee that not all individuals have accessibility and therefore authorization of transactions cannot be easily altered. Secondly, the company ought to appraise and authorize expense reimbursements by managers in a timely manner. A significant percentage of asset misappropriation schemes encompass circumstances in which a worker makes a claim for reimbursement of fabricated or overstated business expenses. Management ought to first make certain all policies and procedures, together with those associated to expense are conveyed to all personnel, in conjunction with timely notices of any pertinent informs. In addition, expense reports provided by personnel, together with any underlying support, for example credit card bills and receipts, and the like ought to be revised and signed-off by the employee’s direct supervisor and the organization’s payroll department. Most of all, the company should ensure that the systems are secure through anti-viruses and passwords such as that any attempt of hacking or fraud can be detected instantaneously. In addition such passwords should be changed frequently to facilitate increased safety (Baker Tilly, 2015).






References
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Somjai, S. (2017). Advantages and Disadvantages of Outsourcing. Graduate School, Suan Sunandha Rajabhat University. Bangkok, Thailand. Business and Management Review, 9(1).
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World Bank. (2018). Global Economic Prospects. Retrieved from: http://www.worldbank.org/en/publication/global-economic-prospects