MONTES, DENISSE IRA M.

201820046 Management Control 221

CHAPTER 7
MEASURING AND CONTROLLING ASSETS EMPLOYED

CASE 7-4 ALOHA PRODUCTS

ANSWERS

1. Evaluation of the current control systems

 Manufacturing
- The current control system within the manufacturing plant is weak for
the reason that they have no control or even just influence on the
purchasing decisions with regard to the raw materials (unprocessed
coffee beans) used in their plants.
- This doesn’t allow the plant managers to influence the quality, cost, or
quantity of any raw materials that are being used in the plants. They are
just acceptors of what the purchasing unit gives them and followers of
sales unit’s established policies.
- In addition, the plant manager’s bonus is based on a percentage of his
or her plant’s gross margin which, although in his accountability, he
doesn’t actually have full “control” of.

 Marketing
- The marketing department is directly handled by the VP of sales rather
than having a separate sales and marketing department where a unit
manager is the one responsible in the sales policies.
- This doesn’t match with the level of authority of other functions and may
have an effect in policy making (sales).
- Also, centralization in this department may have certain ripple effects on
the sales of the products such as: implementation of new technology
which may be delayed due to a more complex applicability and the less
responsiveness of the management

 Purchasing
- The purchasing unit is largely autonomous, letting them have their own
decisions on matters that are given them the authority to handle. Also,
this resulted to them lacking in coordination with other related/concerned
departments
- They kept their own records and handles all financial transactions
related to purchasing, and even sales to outsiders, and transfers to the
3 roasting plants which made them function like a profit center.
- Unit manager reports directly to the company’s secretary-treasurer

Page 1 of 2
 - They use the projected sales budget, which frequently differs from the
actual sales, to enter into forward contracts with exporters.
- They regularly make commitments because big volume purchases
permitted them to buy on favorable terms and to generate a normal
brokerage and trading profit when it sold smaller lots to small roasting
companies which clearly will benefit their department and eliminates the
unit’s motivation to make smart buying decisions
- As a result, they always arrive at the typical situation of having a surplus
bags of coffee bean for storage or sale in the open market since it is part
of their policy to make purchase commitments based on maximum
potential requirements rather than measuring how much of the assets
should be employed to generate a profit for the company

2. In this case, it would be better if they would consider restructuring the functions of
the different departments in order to let the manufacturing plant maximize its role
of being a profit center rather than being just an acceptor and follower of the
purchasing and sales unit. In addition, the purchasing unit must be able to
coordinate most especially with the manufacturing department on matters that will
ultimately affect the manufacturing of the company’s product. They must be able
to agree or come in terms with the quantity, quality, or cost of raw materials
purchased and be able to establish a good relationship. They must take into
account purchasing and maintaining a level of inventory or asset that will give the
most benefit or optimum benefit to the company using different measurements like
ROI or EVA. On the marketing side, they should not be so centralized that they
effect negatively those that are affected or influenced by their policies and
decisions.

Page 2 of 2