Hasfhi Rahmat

1121002033
Case 4-6
Grand Jean Company
Questions:
1. How would you describe the goal(s) of the company as a whole? Is this, or are these, the
same as the goal(s) of the companys marketing organization and the companys 25
managers of manufacturing plants? Explain.
Answer:
The main objective of the company is to increase profitability and achieve high growth.
The company is striving hard to achieve cost effectiveness and achieve high level of
quality. Now, the goals of the companys marketing organization and companys 25
managers of manufacturing plant are different.
The marketing division is treated as a Revenue Centre so the goal of the
companys marketing organization is to maximize revenue and sell the products. They are
evaluated on the basis of meeting the set sale unit and sales targets. They are responsible
for making demand forecasts which are used to decide the production levels of each plant.
Whereas, the manufacturing plant have the goal to just meet the budget figure and fulfill
the quota allocated to each plant. Since they are considered as an expense center and there
is no immediate monetary reward to compensate for increase in responsibilities or
requirements, they are not concerned to achieve higher efficiency and thus, want to
exceed the targets.
2. Evaluate the current management planning and control system for the manufacturing
plants and the marketing department. What are the strengths and weaknesses?
Strengths:
a) The company has been profitable for a long time.
b) The company has 25 manufacturing units of its own and 20 independent
contractors producing efficiently and reliably for them.

c) They have developed a learning curve to develop the productions standard hour.
d) 1-to-5 scale reward system can motivate employees work harder.
e) Use budgeting to set the quota, which can evaluate the performance easily.

Weaknesses:
a) There is no incentive to the manufacturing plants to exceed production. Rather, it
makes the things difficult for them as they have to meet increased quota and have
thus resorted to Hoarding of stock even if there is enough demand.
b) Standard hours calculations are done on same scale for new and old machines,
which hence produces inaccurate results.
c) They are highly dependent on the outside independent contractors who provide for
approximately one-third of the total pants sold by them.
d) The reward system is not fair. The people who work at the headquarters are
awarded higher rating than the plant managers.
3. One plant manager recommended that plants be operated as profit centers because it
would overcome some of the problems discovered by Mia Packard and the case writer.
This plant manager commented, [My] competitor is the nearby independent
manufacturer that makes the same pants for Grand Jean as my plant makes. And this
outsider might also make pants for Grand Jeans competitors. Because of the competitive
market, only the best managed plants survive in this business. Therefore, like the outside
companys manager I should have bottom line responsibility and be rewarded
accordingly. Do you agree or disagree with the profit center concept for Grand Jeans 25
manufacturing plants? How would this approach affect the plant managers decisions,
performance, etc.?
The manufacturing plants have the goal to just meet the budget figure and fulfill
the quota allocated to each plant. There is no incentive to the manufacturing plants to
exceed production. Rather, it makes the things difficult for them as they have to meet
increased quota and have thus resorted to Hoarding of stock even if there is enough
demand. Since they are considered as an expense center and there is no immediate
monetary reward to compensate for increase in responsibilities or requirements, they are
not motivated to achieve higher efficiency. But the manufacturing plants are considered as

a Profit Centre, the plant manager will be able to earn incentives through higher
efficiency. He will be motivated to work efficiently and produce at peak levels.Also
theyll not restrict themselves to the plant quota and would not hoard the excess
production; rather theyll make full use of this extra production and gain maximum
monetary rewards. A change in the reward system would encourage the plant managers to
push to maximum production and also to minimize the cost, time and effort to produce
efficiently.
4. If Grand Jeans manufacturing plants were treated as profit centers, three alternatives
were suggested for recording revenues for each plant:
a. Use the selling price recorded by Grand Jeans sales personnel for pants sold to
retailers and distributors
b. Use full standard manufacturing cost per unit plus a fair fixed percentage
markup for gross profit
c. Use the average contract price Grand Jean paid outside companies for making
similar pant types
Evaluate these three alternatives. Which one would you recommend? Why is your
selection the best one?

Considering the three alternatives given to us the best one would be the cost plus
fixed margin (Alternative 2). All other options dont fit well in the situation of Grand
Jeans. Moreover, the manager of manufacturing and sales may sit down and negotiate
and reach at a consensus. This price could be between the cost plus margin price and
selling price of the sales department. At this price the sales department will have
sufficient margin as well as manufacturing department will have good incentives to do
well.