computer games. The product is not targeted at the new market but only for those in there
40 - 60s.
Another cause that I believe has resulted in the poor variances is the special order being lost
probably due to the firm not meeting production deadlines so as a result the variance has
occurred.
I believe is the main reason why the variances have occurred and this is because of the
machinery is said to be old and not reliable and also the variance targets could be set too
high or even too low so this must be investigated to a further extent.
The material variance resulted in an adverse this is probably due to the price of the
material, the price of the materials could have increased so firm should of searched out for a
new cheaper supplier. The budgeted amount was 490 whilst the actual amount was 342 so
there was an adverse of 58. More material was used than predicted this I think was
probably due to a lot of wastage or even workers making mistakes and wasting materials.
Another reason for this variance could be the theft of the material. I think the firm did not
take advantage of bulk buying so major discounts were lost and could have resulted in the
adverse variance.
The material costs could also have been budgeted too low and the firm did not realise the
increase in prices, wastage so this could have also hindered the variance.
The labour variance also showed an adverse, as the budgeted was 96 whilst the actual
came to 105 meaning an adverse of 9. This is another adverse in the firm’s variance analysis
and is caused by the ageing workforce I feel. Most of workers are in their later age and
could suffer form illnesses. The main reason I feel the variances have occurred is due to the
old machinery the firm owns as it could have broken down and valuable man-hours had
been lost whilst the machinery was being fixed. Labour time management and training could
also have occurred the variances as the workers could be poorly trained and could not carry
lout the tasks in the required times.
The power variance is shown to be a favourable in the analysis as budgeted was 4.8 and
actual was 4 so a favourable of 0.8.
This is a positive variance but it is only achieved as the firm has only produced fewer goods
as machinery kept on breaking down. The variance could also have been set too low so
even as this is a positive variance it musty still be investigated as why it has occurred as a
positive. The fixed production cost variance is a favourable by 2. The budgeted amount
was 50 whilst the actual came to 48. This has occurred probably due to good management
or even a reduction in fixed costs. If a firm keeps its fixed costs too low they might be
emitting vital functions of the business that could reduce the firms efficiency and in return
could suffer high costs to the business in the loss of productive efficiency and sales by
keeping fixed costs deliberately low.
On the bases of my variance analysis I will recommend the following suggestions to
the firm so the variances could be minimised.
In order to minimise the variances the firm must recognise its operations.
The sales variance was relatively high so the firm needs to concentrate and improve the
marketing effect. The firms could take such actions as an increase in its advertising
campaign, so it is increasing the knowledge of its product.
To improve the variance the firm could target a new segment the younger generation with
newer model cars and benefits. By effective marketing research and approach the firm
should target new customers who would want these benefits. The firm main aim should be
effective marketing especially at the newly identified 40 to 60 year olds. Ongoing marketing
will increase potential sales thus higher profits can be achieved.
The firm is selling nostalgia so variances could be achieved through effective management
and by improving standard costs and the overall efficiency of the business. The firm must
ensure that the budget costs are equal to actual costs and this can by done effective market
research and planning that will result in a efficient firm.
All extensive favourable variances that have occurred I feel must be investigated as they
could have been set too low and the firm did not budget effectively. The firms number one
aim should be to enforce accurate budgets and team working, training and also investment
into new machinery and the results will show up in profits.
Cellular production could also be used to create job deepening and widening as a result the
average work day will became more interesting and worker will work more effectively and
also less absentees. By training workers and working effectively the firm would benefit from
correct budgets and profit.
Bulk buying and extensive market research is vital to successful and must be fully met.
I will now construct a sales forecast for the next year.
Jan Feb March April May June
Low low increase
10000 10000 15000 18000 20000 30000
July Aug September October November
Decline high
20000 25000 25000 51000 80000
Dec Total 388800 for year predicted are.
High
84800
I came to the above sales forecast conclusions that I have created y referring to the
appendix 2 in case study that I had. By using the sales variance I have predicted that that
sales will fall. The sales forecast above are my predictions but I have also taken into
account the declining market, as children are less interested in toys and more in computer
games. So I have decided to have a 10% decline in the sales predictions.
I have taken 10% of the original sales prediction of 432000 from last year. The new total I
have come to is 388800. A 10% decline.
Later on sales that I have predicted should increase as the firm has identified the new market
of 40to 60 years olds who are interested in model cars and also the exporting form Taiwan
could help the increase of sales. Ensuring that the above recommendations made by me are
taken into account. Of effective marketing and management, the control of budget, thus the
sales should increase. I must reiterate that marketing should be an ongoing process so the
consumers can be informed of what is new and available. The highest sales will be made at
Christmas due to the festive season. This is the time of the year where JCC needs to get its
marketing policy precise as most firms take advantage of the holiday season and launch
many products. At the beginning of the year the sales are very low but gradually they will
increase this would be due to the firm employing effective marketing and attracting a new
segment.
Based on the figures presented in appendix 1 I will calculate the monthly profit using
marginal costing.
Sales 1000 per month
selling price £40 each unit
(1000x40) sales £40000
Direct labour cost per unit £8.00
Factory power 0.40 unit
materials £16 unit
Total £24.40 x 1000= £24400
Contribution 40000
take away - 24000
15600 15600
Less fixed costs per month 5000
Profit 10600
Now I will use the figures in appendix 1again to find out the monthly profit using absorption
costing.
Variable cost £24.40
fixed cost £5000 £5 fixed cost per unit
1000
Total absorption cost per unit is £29.40
Sales are £40000
Less absorbed cost £29400
Profit per month £10600
JCC believed that purchasing motors from Taiwan will result in a saving of £2 per motor or
£2000 per month. Ken is keen to press ahead with the idea and now I will analyse the
figures and find out if this move is appropriate and if it will result in a saving.
At present motors are made in house at variable cost per unit of £6 and a fixed overhead
charged at each unit of £2.50. However Ken believes by dealing with the Taiwanese a
motor for £6.50 each so a saving of £2 per motor or 2000 per month in fixed costs.
In house (UK)
Cost £6.00
F/C per unit £2.50
£8.50
(100 x £2.50 = £2000) fixed costs
Taiwan
£6.50
£2.50
£9.00
£8.50 UK
A saving of £2 in Taiwan
It appears that at very first by buying from Taiwan would result in a saving of £2 as the
product is costing only £6.50 to obtain. But where in the UK it is costing £8.50 but in fact
the direct cost is only £6 and the remaining cost which is £2.50 is the fixed cost and that will
still remain as certain improvements might be needed on the products or a new production
process might be carried out. In fact the fixed cost remains and does not disappear even
when the firm buys from Taiwan. Purchases from Taiwan will effectively be £9 and the fixed
costs will remain a burden.
In addition there will also be some non-accounting costs that will have to be considered.
There are many various problems when a firm buys from a foreign country and some of
these are.
*JCC has no longer control over the production and the quality of the Taiwanese motors, as
they might not meet British standards above all customers liking.
*There could also be problems with the continuation of supply as the firm is buying from
Taiwan that is half way around the world. There could be seniors where the firm is unable
to meet consumer demand as supply is delayed. There could be further distribution
problems as the exchange rate might rise and firm finding it to expense to trade.
*The customers might not be happy with the quality they are receiving and losses could be
paid as the cars are suppose to be British but they are being produced in a foreign country
by a foreign firm. So the cars are not British but Taiwanese.
*Possible redundancies if the firm were to but from Taiwan, as production would be closed
down and the manpower would not be needed so possible payments to workers might have
to be given. This would have a major effect on the business as the firm was always involved
in the community and by making its workers redundant reputation could be lost. There will
also be many accounting costs when the production is closed down.
*Possible conflict with the Taiwanese as they could later on increase the price and JCC will
than have to abide with them as they probably have closed down their own production and
sold the machinery. JCC will have to accept whatever price if the Taiwanese were to
increase it as JCC would no longer have its own production and it will be in the mercy of the
Taiwanese.
Ken has informs that he has been approached by the local MG owners club to produce a
job lot of special edition Deluxe model MG’s to celebrate their 40th anniversary. They
require 50 cars, all in ruby red and are waiting a quotation. I will help Ken to prepare a
quote, as he is somewhat confused, as the cars will be made at two different centres.
Centre A - assembly, and Centre B customised spraying.
Below I have prepared the quote using the figures presented in appendix 3.
Job cards:
Centre A
Direct labour 36hrs
Direct labour rate £4.80 = 168
Direct materials from store:
4 x £8.35= 33.40
10 x £4.20= 42.00
1 x £16= 16.00
Total = £91.40
Fixed overheads: absorption rate £3.50 per direct labour hour
£3.50 x 35 = £122.50
£168
£91.40
£122.50
£318.90 for Centre A
Centre B
Direct labour hours 8
direct labour rate £6.50 = £52.00
Direct materials from stores:
5 x £4.60= £23.00
Fixed overheads: absorption rate £8.95 per machine hour, 18 machining hours
operated.
£8.95 x 8hrs = £161.10
£52.00
£23.00
£161.10
£236.10 total for Centre B
Invoice
Centre A £381.90
Centre B £236.10
Total £618.00
15% mark up profit + £92.70
Price £710.70
Vat 17.5% + £124.37
Total cost £835.07
Above I have produced a job card and the invoice price. I have come to the conclusion
that the following price should be charge to the MG Owners Club. I have calculated the
costs for centre A and B and also taken the 15% mark up profit that brought the total to
£710.70. Than I calculated the VAT of 17.5% to the total so the final price came to
£835.07.
I have noticed that it has been some years since JCC made an investment in capital
equipment. The machinery is slightly archaic. The machinery is said to break down on
various occasions and the production manager refuses to be held responsible for poor
productivity.
Ken believes that investing in new machinery will benefit the business as faster production
less downtime, less waste and lower maintenance costs. However there are some barriers
to this as the workforce will have to be trained on how to use the machinery and also
redundancies as the machinery will carry out most of the jobs. The machinery will only be a
benefit to the company if it is run twenty-four hours a day. Mr Jones is apprehensive about
the changes and the effects it will on the firm and the workers even the local community, as
MR Jones is a well-respected man. His workforce and the community enjoy a positive
relationship and his loyal workforce trusts him. Mr Jones is worried about any
consequences of the changes.
Ken has seen two machines on the market and he is reluctant to buy one of them. The two
machines are RCC Silver costing £35000 and the RCC Gold at a cost of £45000. It is
likely that the gold will last approximately 3 years longer than the silver. Ken has some ideas
of additional revenues and expenses if a new machine is purchased.
I will analyse the information and find out if the machinery is really worth buying and if so out
of the two. I will be carrying out an investment appraisal analysis for the two machines.
I will use the pay back method, ARR and NPV method for this.
ARR
RCC Silver RCC Gold
Cost £35000 £45000
years
1 2000 3000
2 3000 4000
3 5000 6000
4 8000 8000
5 8000 8000
6 8000 10000
7 5000 6000
/ 0 5000
/ 0 4000
/ 0 3000
Total 39000 57000
Profit 4000 12000
Profit per year 571 1200
ARR 1.6% 2.7%
RCC silver worked out by adding total inflow which equals 39000 than minus investment of
35000 equalling 4000. Divide the 4000by the number of years in use that is 7 and that
equals 571 profit a year.
Pay back method
RCC Silver RCC Gold
year year
0 35000 0 45000
1 2000 1 3000
2 3000 2 4000
3 5000 3 6000
4 8000 4 8000
5 8000 5 8000
6 8000 6 10000
7 5000 7 6000
/ 0 8 5000
/ 0 9 4000
/ 0 10 3000
Pay back occurs after 6.2 years 7 years
The pay back method states that pay back for silver is 6.2 years whilst for the gold is 7
years.
I will now calculate the net present value of the investment in to the machinery. The
calculations will show the time value of money and if the figures are positive that is a good
indication towards the project. When producing the discounted cash flow I will take the five
percent discount factor into account.
NPV (net present value) discounted cash flow
(DF= DISCOUNT FACTOR/ DCF= DISCOUNT CASH FLOW)
RCC Silver RCC Gold
Year Silver D/F DCF Year Gold D/F DCF
net return 5% net return 5%
1 2000 .952 1904 1 3000 .952 2856
2 3000 .907 2721 2 4000 .907 3628
3 5000 .864 4320 3 6000 .864 5184
4 8000 .823 6584 4 8000 .823 6584
5 8000 .784 6272 5 8000 .784 6272
6 8000 .746 5968 6 10000 .746 7460
7 5000 .711 3555 7 6000 .711 4266
/ * * * 8 5000 .677 3385
/ * * * 9 4000 .645 2580
/ * * * 10 3000 .614 1842
TPV 31324 44057
NPV 3676 ** 943
I will now evaluate the benefits and limitations of each of the investment appraisal methods
used above.
The pay back method of investment appraisal involves calculating pay back period. This is
the amount of time it takes a business to recover the initial cost of an investment.
The method is relatively simple to apply there are several advantages of the pay back
method. The method is appropriate when technology changes rapidly, such as in computing
new more efficient designs and software. So the method helps to value if purchasing the
new technology is appropriate.
JCC needs to invest in the right machinery as they are having some financial problems. All
investments projects are risky to some degree, the shorter the pay back period the less risk
involved. This method is quick and uncompleted and helps to make quick decisions over
choice of what machinery to buy. By using this method I was able to find out how long it
would take to make the money back that I would invest into the machinery.
The disadvantages of this method are that it ignores all revenues after pay back. The overall
profitability of investment projects are ignored, this is because the speed of repayment is the
sole purpose. Another thing it does not consider is the time value of money, the timing of the
cash flows within the pay back period are ignored.
There are several advantages of the ARR method this method is slightly less difficult than
the pay back method. The profitability of an investment project is clearly identified rather
than simply the cash flow. This method helps to make relatively easy comparisons between
different types of investments projects. The method can be used to compare the return on a
particular project with the return on capital employed within a business as a whole. This
method shows profitability that pay back does not show. It shows the profitability but
profitability must not be confused for the final profit. It shows how well the firm’s assets are
being used.
The disadvantages of the method are that it does not take in to account the timing of cash
flows. This might cause JCC problems as business could suffer from poor irregular cash
flow. The ARR method does not take in to account of how long the investment will last, nor
how long it will take for income to cover the initial outlay.
So this method is much harder to calculate than the pay back and also problems can arise
with averaging because it does not show whether a project is more or less profitable in its
early or later stages. The method ignores the time value of money, if that money is worth
more now than in future. It uses profit figures that include no cash items such as
depreciation and provision for bad debts. This can distort the calculation depending on how
depreciation and other provisions are calculated.
I will also indicate the benefits of the NPV net present value process and its limitations.
The NPV method of investment appraisal considers the costs and benefits of an investment.
It also takes into account the effect that interest rates and time have on the investment
decision. The main benefit of the method is that it considers the time value of money and
when calculating the NPV investment all the costs and benefits are given at their present
value. The following formula is used to calculate the present value of future cash.
Present value of cash flow in year N= actual cash flow in year N
1
R= rate of interest (1+R) N
N= the year of the cash flow, the number of years into the future.
Formula to work out NPV discount factor
1
1.05= 0.952
1
1.05 2=0.907
The method is excellent for analysing projects and comparing alternative investment projects
and they can be easily compared. The method takes into account the interest rates and the
timing of future cash flows.
I worked out the NPV by subtracting total present value of investment. The product with
the highest NPV is the RCC Silver but I feel neither of the machines are a intelligent
investment.
The disadvantages of this method are that it can be very difficult to understand and analyse.
The method is complex to calculate without a computer or discount tables.
The future rate if interest is mostly to vary and is unpredictable so could affect firm. Also it
is normal to calculate discount factor to 3 or 4 decimal points. But it must be understood
that precision to 4 decimal points on estimated cash flows can add to unnecessary
complications. Future predictions are also difficult to forecast as the market is dynamic but
this method is widely used when projects are in consideration. The method does not
provide an accurate means of comparison if the initial outlay on projects is different.
E.g. of NPV
NPV 50000 on a 5,000,000 investment would generally be considered not as good as a
NPV of 40000 on a 200,000 investment, even though the NPV is higher.
The method is time consuming if not fully understood and hard to calculate.
After taking into account all the qualitative factors and by producing the appraisal.
Below are my recommendations to JCC if it is to buy the machinery.
After analysing the results I have come to the conclusion that it would not be a worthwhile
buying the machines. I have come to the following decision due to many factors. The main
factor is that the net present value is shown as a negative for both of the machines. The
machines will not be a worthwhile investment. The accounting rate of return for the two
machines are too low, simply there is not much that can be achieved by, buying the
machines.
Rate of return for Silver is 1.6% whilst for the Gold is 2.7% that is relatively low and not a
worthwhile investment. Also the pay back method clearly shows that it would take too long
for the machinery to be paid back. The Silver would roughly take 6.2 years to pay back
whilst the Gold would take 7 years, these periods are too long and JCC cannot afford to
investment into the machinery as the market is also in decline.
Since the appraisal method did not prove positive I still feel it would not be a good
investment for JCC.
In order to make the most out of the machinery it is said that the machinery would have
been run 24hours a day. From looking at all the data of JCC it is clearly not a good idea as
the market is in decline and sales are low so the machines running 24 hours a day would be
totally unnecessary as there is no demand to warrant the running especially 24hours a day.
The sales variance analysis indicates that the sales have decreased, costs have risen due to
poor management control so buying the machinery would be totally inappropriate as costs
would rise especially when machinery would have to be run 25hours a day.
JCC has not got a good a very understanding of the current market and most of the data
they posses is not very accurate. So the appraisal could have been produced using
inaccurate figures. The data is not very reliable so it would not be in the interest of JCC to
purchase the machinery. The machinery would prove to be a negative investment.
There are also problems with training the workforce if new machinery purchased. The firm
would suffer from training costs and productivity would be disturbed as workers being
trained. Some redundancies might have to take place as the machinery normally replaces
manpower. Redundancy payments will have to be made and this could also have an affect
on the reputation of JCC. JCC is described to be a part of the community so by making
workers redundant would give a bad impression of the firm. The good reputation it has in
the community would be lost. Major shift changes would be needed due to the fact the
machinery must be run 24hours day, reorganising in the firm. High wage costs as running
continuously and could cause conflict as workers having to work night shifts. Socialisation
of the workers would be effected as time changes.
The machinery could also be too loud and disturb the local community and cause bad
relationships, therefore causing bad reputation. This could cause the sales to fall.
The company could benefit from investing the money into a bank or a building society and
can earn interest from there.
As all the methods have proven that the investment into the machinery would not be a idea
for the business. I feel the money could be invested into the improvement of the original
machinery as the records show the current machinery is slightly archaic and often breaks
down that results in poor productivity overall the machinery is unreliable. A lot of
manpower is wasted whilst Norma is fixing the machinery.
The firm could find a contractor and negotiate a deal and get the current machinery restored
fully so productivity at the highest level can resume. Also the reputation of the firm would not
be effected. The firm would benefit from not investing in the machinery I have come to this
conclusion by analysing the appraisals and the appropriate information given. I feel my
conclusion is valid and the machinery is not worth buying.
If JCC were to do ahead and invest in the new machinery to increase production the
following consequences would occur to the following people,
*The employees would be effected if machinery bought as the new technology might take
their jobs and produce. So job insecurity for the workers as new technology can produce.
Possible redundancies might be considered by JCC that will effect their reputation in the
community as making people redundant. The employees that JCC might consider to retain
will need training on the new machinery. This process will incur costs on the business. So
effective use of the machinery will take time, as employees still need to normalise their selves
to the new equipment. Production will be slow at the start.
Another major effect on the business will be that the working hours for workers will have to
be increased as the machinery will have to run 24hours a day. This would cause the wage
costs to rise and also major shift changes so reorganising will be needed. Some workers
will have to work night shifts and whole days that would be restricting the sociable hours.
The machinery would not benefit the firm or the loyal workers of JCC as it will raise costs
for the firm and also cause bad reputation in the community as loyal workers being made
redundant. As a result sales could fall.
*The local community would also be affected, as the redundancies will have to be made.
This is because most workers are local so the community would be affected and the local
economy.
The machinery would also cause noise pollution, as it would be run 24hours day. The
increased emissions from the machinery as of the 24-hour operation would effect the
community by disturbing the peace of the town and also the constant movement of materials
and goods could also cause traffic. Therefore increased pollution and nuisance for the
community.
*The environment and the tranquillity of the town would be disturbed as the noise from the
machines the increased usage of power from JCC will all effect the community and the
environment. So there could be complaints from the local residents to the council about
JCC and the firm could face fines for the noise and disturbing. Therefore giving the
respected family run business a bad image in the community.
*The firm’s ethics by buying the motors directly from Taiwan more cheaply could mean the
firm is exploiting the workers in South Asia. The suppliers could be using child labour to
produce the motors and if found out JCC would lose its reputation that it posses. Also
exporting from Taiwan might not be appreciated by the consumers as the cars are suppose
to be British but why are they made in Taiwan so sales could be lost and the product could
be of a poor quality. Mr Jones is very reluctant on image and wants to keep the community
and his loyal workers happy. Therefore increased profitability is not essential, customer
satisfaction is more important.
The social consequences could be minimised if the firm is willing to reorganise its
operations.
Flexible working hour arrangements could be negotiated with the workers. The firm could
also offer special redundancy payments to those who are willing to leave therefore causing
less conflict in the work place. The firm could offer alternative work for those being made
redundant so reputation would not be lost.
To reduce the noise pollution the deliveries to the business could be at certain times.
E.g. only between 6am to 8am or so. This will result in less traffic in the town and noise
pollution.
To make the machinery energy efficient economical programmes could be introduced such
as, how to reduce wastage and electricity usage. The firm could consider investing and
researching in cleaner fuels so less pollution will be produced resulting in a cleaner
environment. In order to reduce the noise from the machinery the firm could invest into
soundproof walls but this will incur heavy costs. But the local community will remain happy
and no complaints will be received. To improve the efficiency of the business the firm
should conduct market research in the town to find out what the consumers want.
Since there would be noise pollution from the machinery what the firm could do is put
something back in the community just to say thanks. The firm could sponsor the football
team or even special events involving sports cars so a fun day for the children. The firm
could also sponsor a school playground. This will probably increase sales in the near future
and children might be attracted to the cars.
To resolve the problems with the Taiwanese of worker exploitation the firm could suggest a
Fair Trade policy where the workers are given rights at the work place and their wages
reviewed so efficient money is being made by them to live on.
By using the above suggestions the community and the environment would be affected to a
lesser extent if not at all and the firms reputation would remain.
To: Mr Jones Ref: Executive Summary
From: Usman Mahmood Date: 01-06-2003
Terms of reference
I have produced full management report on Jones Compact Cars that had been asked for
by Ken. By using my expertise in the area of management accounting, I have evaluated
what cause of action is needed.
Jones Compact Cars is a small family business in rural Southgate. It was established 40
years ago and its star product is the flame red MG. I believe Jones a Compact car in rural
Southgate has accomplished very much since it was established 40 years ago.
Findings
The firm lacks in four major areas. Poor marketing, inter co-ordination, personnel and lack
of production. Below I have investigated the four problems in greater degree.
The current machinery keeps breaking down, the firm has lost special order, poor marketing
and budgeting.
On of the major problems that can be seen is that the firm does not practice good budgetary
control. The sales forecast is set but it is very rarely monitored and costs are poorly
controlled. The firm is incorrect in its assumption that it needs to sell 300 cars per year to
break even. The firm must produce an accurate break-even analysis in-order to find out that
the firm must sell 321 cars each month and not 300 per year to break even.
In order to increase sales. The firm last year set it self a sales target of £500,000 but did not
manage to achieve it. The sales variances suggest that the business is not spending its money
properly. The firm must locate suitable suppliers and order the correct goods at the suitable
prices. The firm needs to cost accordingly as budgets are very rarely monitored. Costs are
poorly managed and this effects the firm greatly.
The firm is selling nostalgia so positive variances could be achieved through effective
management and by improving standard costs and the overall efficiency of the business. The
firm must ensure that the budget costs are equal to actual costs and this can be done
effective market research and planning that will result in a efficient firm.
The firm must keep a very close eye on its costs. If the firm purchased motors from Taiwan
it will not reduce the fixed costs of £2 per motor or £2000 a month. The fixed cost remains
and do not disappear even if the firm buys from Taiwan. Purchases from Taiwan will
effectively be £9 and the fixed costs will remain a burden. There could be various problems
when buying from a foreign country. Could results in redundancies and poor reputation for
the firm. Unemployment in the town of Southgate would rise. The customers might not be
happy with the quality they are receiving and losses could be imminent.
The business is product oriented and does not take into account what the market is asking
for. The firm must realise that marketing needs to be effective and constantly ongoing. The
firm should target the right customers the older generation and not the kids as they are more
interested in computer games at present. The firm needs good effective marketing in order
to identify customer so the firm needs to become market oriented. The firm needs to
understand that the market is dynamic and continuous marketing is needed. So the firm
must allocate extra funds towards the marketing and promotion, as this will increase sales.
By effective marketing research and approach the firm should target new customers who
would want these benefits. The firm’s main aim should be effective marketing especially at
the newly identified 40 to 60 year olds who are interested in model cars. Ongoing
marketing will increase potential sales thus higher profits can be achieved.
The production of the cars is not effective as the machinery is slightly archaic. But the
business must not buy the new machinery, as it is not needed. The accounting rate of return
is poor and also the pay back method indicates that it would not be an effective investment.
The firm would be wasting money by buying new machinery; instead it must improve current
machinery. By fixing current machinery there would be less conflicts as to making people
redundant and also the consequences would be avoided with the community regarding to
noise and pollution. Job security will remain for the workers and the reputation of the firm
will not be effected.
The two machines on the market are RCC Silver costing £35000 and the RCC Gold at a
cost of £45000 and they are not a suitable investment for the firm.
The company could benefit from investing the money into a bank or a building society and
can earn interest from there.
Suggestions
Although the business is lately going through a rough time as the market is in decline with the
kids more interested in computer games rather than in model cars. The firm should conduct
research and also target the newly identified 40-60-year olds market that is very interested
in classic cars. By an effective marketing approach I believe the firm can overcome this
drought. One of the most important aspects for JCC is marketing and the firm must ensure
correct approaches are taken to identify customer. The customer must always be informed
what JCC is launching and also JCC must carry out research to find new trends in future.
The firm see if the demand exists and produce accordingly to that demand. To be
successful market research needs to be done constantly and the firm in future must persuade
the customers and influence them to buy the products. The business must diversify in order
to increase sales and expand to make more profit.
The finance is also very important and JCC must ensure that the correct methods are used
to monitor company performance and costs are lowered. Financial targets need to be set
accordingly and must taken into account the current interest rates and the current situation of
the economy.
The firm in future could export from European countries that follow set standards such as
minimum wage and worker rights. The product could also be of the highest quality since
exporting from Europe. Or JCC could launch its products in foreign countries to increase
sales and could establish it self for being the number one MG model maker. The firm could
introduce new models of cars and new techniques that could attract the younger generation
so further sales could be made. The machinery must be fixed this could be done by a
special contractor, training in the workforce to motivate the workers and create a family
atmosphere at the work place. The firm could employ new younger workers and train them
on the job to reduce costs so future workers are catered for.
JCC is in a very competitive environment I feel it must reorganise its marketing to take full
advantage. In future it could also consider launching other products such as model planes.
I believe the future car model market will intensify with more and more competition will
exists. JCC must establish customer loyalty now before the market becomes to competitive
and customers have a choice of sellers to buy from. I believe the competition will increase
with more firms introducing themselves in this market.
Future economic trends must be recognised and the firm must take full advantage of low
interest rates as loans can be obtained and money used to invest into the company. I believe
the firm must take full advantage of bulk buying and reduce wastage in order to increase
profits.
I feel a new younger approach is needed so young Jones is the right person to do this. The
future for JCC Compact Cars will only be good by excellent marketing, internal co-
ordination, excellent personnel and good quality production.
If the above four are met accordingly JCC will be the number one for model cars.
I feel research and marketing are the most important aspects for JCC by identifying the
customer and the needs the business would be in a stronger position.
1
Usman Mahmood