Page 8 - CIMA MCS Workbook May 2019 - Day 1 Suggested Solutions

CIMA MAY 2019 – MANAGEMENT CASE STUDY

the right decision and whether the project provided the returns that it promised. Having a review
in place can identify where poor decisions have been made in the past and enable the company to
revise its procedures to try and avoid making them again.

The review should ideally be undertaken by someone who was not involved in the initial decision‐
making process, so that their views are independent.

3. INTERNATIONAL MANAGEMENT ACCOUNTING ISSUES

If Jord chooses to set up a North American subsidiary, the following are some of the management
accounting issues that would need to be considered.

Control

One of the dangers of setting up a foreign subsidiary is that the board of Jord may find it more
difficult to maintain the same level of control as they exert on local operations.
There will be a greater danger of dysfunctional behaviour than with existing operations, unless
appropriate instruction is given and monitored, and appropriate targets and incentives are set by
Jord management.

Performance evaluation

Setting appropriate targets for performance evaluation may involve some changes to the way that
targets are currently set.

Firstly, it may take the subsidiary a while to get up and running. This means that it may not be
able to hit the same strict targets as the existing operations.

Also, operating in a different country with a different culture and regulatory framework may
cause issues with setting targets.

It may be that regulations, for instance for the maximum hours workers are allowed to work each
day, are different than in Corvola. This may mean that build projects can be done either more )or
less) quickly than in Corvola, so setting the same timeframes for a project as would be set in
Corvola may not be feasible.

Perhaps the rules for what constitutes adequate foundations for housing are stricter so more has
to be spent on them, meaning existing cost targets cannot be adhered to.

Price setting

It may not be a case of simply taking the prices currently charged in C$ and translating them at an
appropriate exchange rate. Jord will have to investigate the North American market to see what
competitors who offer similar quality offerings (such as Luxblocks) are charging.

Jord’s high quality reputation may not be instantly recognised by American buyers, so the
company may have to consider setting up at a competitive price position to gain a foothold in the
market.

Just in time operations
If it is anticipated that the subsidiary will operate in the same way as the Corvolan operations, i.e.
utilising just in time purchasing and production, the company must ensure that quality is built in
to the new operations right from the start. Reliable suppliers will need to be in place and

58 KAPLAN PUBLISHING