HK CORPORATION

Case Study: HK Corporation



Table of Content

Case Study: HK Corporation1

INTRODUCTION1

BUDGETARY CONTROL SYSTEM1

STANDARD COSTING SYSTEM2

CASE STUDY ANALYSIS HK MANAGING DIRECTOR'S SALES AND PROFIT TARGETS4

CASE STUDY ANALYSIS HK CORPORATION'S BUDGETING6

Product Pricing6

Decision6

Basic Justifications6

RECOMMENDATIONS7

CONCLUSION8

BIBLIOGRAPHY9

Case Study: HK Corporation

INTRODUCTION

 HK Corporation is a packaging HK Corporation that manufactures paperboard and cartons. Its paperboard division sells to external customers and supplies raw materials to the carton division. Outlined in the case are the planning and control systems that HK Corporation has in place. The group examined each system and evaluated them to see if they are aligned with HK Corporation's organizational structure and nature of business and if the correct people are involved. The group also scrutinized the control system to see if this effectively measures each department's performance and if it can pinpoint the sources of any variance.

BUDGETARY CONTROL SYSTEM

There is a need to review the control systems of HK Corporation to determine if these are configured to properly evaluate the performance the HK Corporation and its departments. Its management procedures also need to be assessed to establish if the correct people are being involved. Below are the various systems that the HK Corporation has in place, with the corresponding analyses.

The HK Corporation utilizes a job-cost accounting system using standard costs. These standard costs are based on the annual estimates of labor and factory overhead costs. If these estimates were inaccurate then the standard costs would be incorrect as well. The system must be more dynamic and must examine on a more regular basis (e.g. monthly or quarterly) the allocation of the overhead costs and make the necessary adjustments.

Additionally, job-costing requires the fixed costs to be allocated to each job. If the allocation is incorrect, then the costing will be incorrect. These inaccuracies will be passed on to the customer or to the carton division. As with the computation of the standard costs, these allocations must be scrutinized thoroughly and frequently to minimize any errors. Otherwise, these errors will be reflected in management reports.

The lists of costs and revenues associated with the paperboard and carton divisions. The advantage of this is that the HK Corporation can easily see which of its divisions are making money. This will allow it to make strategic decisions such as whether to outsource the manufacturing of paperboards.

The disadvantage is that the control system is based on the business units, not on the organizational structure. The organizational structure is based on the operational functions of the HK Corporation, i.e. sales, production and marketing. However in the control system, the figures for these functional groups are divided between the board mill and the carton factory. This makes it difficult to pinpoint the source of the variances since the expenses are grouped together. Thus if a negative variance appears, it will not be immediately apparent what the source of the variance is. There is a vague distinction between task control and management control. Superintendents attend the strategic planning meetings, even though they should only be concerned with the implementation of the strategic ...