Case Study-QA221

Case Study-QA221 Online Services

 

Case Study – Southampton Oak
 

Introduction
 

Southampton Oak is a small, but rather exclusive, producer of bedroom furniture. Turnover last year was just over £2 million and the business continues to provide a steady profit margin. It is a private limited company owned by Bruce Jones and his wife Catherine and it has been trading for 25 years. Bruce, who is a fully qualified cabinetmaker, started in the trade immediately after leaving school. He has little formal training in management, but has much hands-on experience gained from running his business.
 

Background of the Company
 

The company originally operated from small, cold and draughty premises in the back streets of Southampton and in the early years its only employee was Alex. The business grew steadily in the early years and about ten years ago Bruce was able to move from the original site to a high street location in Southampton, which provides a small showroom area, a workshop, staff room and storage. However, the product range has remained fairly constant and consists of three pieces of bedroom furniture, namely, a wardrobe, a chest of drawers and a dressing table. These are sold directly to customers either as separate items or as a bedroom suite.
 

Specialized Production Process
 

The furniture is hand-made to a very high standard, authentically reproducing the Baxendale style which was popular in the late nineteenth century. This requires a high degree of skill in the construction and finishing stages of the production process. Although most of Bruce’s time these days is spent in managing the business, he still keeps a watchful eye on activities and likes to help out if the men are over-stretched.
 

The furniture is made from mahogany supplied by Southampton Timber Company, which imports high quality seasoned timber from South America. Although Bruce could buy mahogany more cheaply elsewhere, he has dealt with this company for a long time and has confidence that the quality will be consistently good. The grain and colour of the wood is extremely important and, because the fronts of the furniture must match in grain and colour for each piece or suite of furniture, the company expects to have a high level of off-cuts and waste.
 

The unique finish to the furniture is produced through a highly-skilled hand-waxing process, using beeswax mixed to a special recipe created especially for Southampton Oak by Charles worth Specialist Waxes, who make and supply this recipe exclusively to the company.
 

Mahogany and beeswax are the two main materials used to make the finished products. Ten people are now employed full time in the production process: eight are highly skilled cabinet makers and two are young apprentices. All the cabinet makers have been with the company for a long time and Alex is now the workshop supervisor. Alex is a bit set in his ways but, according to Bruce, ‘He does a damned good job and he is a very good craftsman.’
 

Specialized delivery service
 

Careful delivery of the furniture to the customer is very important and Bruce is proud of the fact that the company receives very few complaints of furniture damaged in transit. The company sub-contracts this part of its activities to a well established company in the city of
 

Southampton. This company has always been reliable and has provided a high class service to customers carefully protecting the furniture in transit, setting the piece in its position for the customer and asking them to check it over. If the customer is not satisfied with the furniture, then it is returned to the workshop immediately. Of course, Southampton Oak pays a premium price for this service, but it has proved of benefit to both the company and the customer, since problems can be resolved immediately.
 

Financial Information
 

The specialised nature of the production process and the specialised delivery service results in high product costs. However, Bruce has found that the company’s products attract the type of customer who is willing to pay a premium price.
 

In the past year the company has invested £100 000 in the refurbishment of the offices and showroom and in the extension of the workshop and storage area to meet increasing demand for the company’s products. This was funded by a five-year loan from the company’s bank.
 

Bruce believes that the increase in demand is mainly due to the showing of a television documentary of Southampton which featured Southampton Oak. The company appeared in a very favourable light as part of the new face of Southampton and the programme was given prime-time national coverage. In order to capitalise upon this free publicity, Bruce also launched a national advertising campaign, using the documentary as a marketing ploy.
 

However, the increased demand is putting pressure on the workforce and the leadtime (the time between the customer ordering the furniture and the expected delivery date) is increasing. Anita has been responsible for the paperwork ever since Bruce started the business. Initially she worked part time whilst her children were young but has worked full time for the last five years. She has had the help of Collins, who is a qualified accountant, for the last twelve months. Collins spends two days each month on the company premises, assisting with costing and accounts. Although, according to Bruce, ‘Anita has always done a great job of sorting us out’, Bruce feels that the company is getting too busy for her to cope. He has asked Collins’ advice and Collins has suggested that it is probably time to employ a full time management accountant, even though this will mean a reduction in his own services for the company.
 

Bruce received a profit statement from Collins for the previous six months’ trading which itemised the performance of the company’s three products. This is attached as Exhibit 1. Bruce was appalled to see that the dressing tables had made a loss. He has called a meeting for next week with Anita and Alex to discuss the situation.
 

Bruce warned Anita and Alex that at next week’s meeting he also wishes to discuss another matter with them. This concerns a potential new venture for the company. Much to his amazement, knowledge of the company has reached the Chinese market through the screening of the television programme. One particular company has approached Bruce with an enquiry for fifty chests for export to China. Southampton Oak has never supplied bulk orders before. This customer is willing to pay full price and overseas shipping cost, but requires some minor changes with the design. Southampton Oak would need to hire a designer to work two days in the company to make such minor changes, with £1,000 consultant fees per day. This change of design will not lead to the change of the manufactory costs. Bruce estimated the delivery cost of 50 chests to the dockside is 3 vans @ £250 each.
 

He has briefly discussed the problems with Collins, and Collins has been working overtime to produce some extra information, but has only managed to obtain the raw data by the date of the meeting, which is attached in Exhibit 2
 

You can read more about our case study assignment help services here.
 

 

The Mirror Section of the Dressing Tables
 

Six months ago Bruce made the decision to buy in the mirror section of the dressing tables from a local firm at a cost of £195 each. There was an original estimate of the cost if the company were to continue making the mirror section in house, which was used for comparison with the sub-contract price. This is shown below
 

(£)
Direct materials 110
Direct labour 40
Variable overheads 20
Fixed overheads 40
Total 210
In order to ensure that the timber used to frame the mirror section matched the main body of the dressing table, it was agreed that the supplying firm would buy their timber from the same supplier, i.e. Southampton Timber Company. The mirror sections were delivered to Southampton Oak in an unfinished state and were hand-waxed by the company’s own craftsmen. Control over the quality of the mirror sections has been problematic.
 

The Meeting
 

It is obvious to everyone that Bruce is worried. The first item on the agenda is the lossmaking situation of the dressing tables. Bruce comments, ‘I am appalled to find that the dressing tables are making a loss of £25,000. I can’t understand it as it has never happened before. It looks as though we shall have to stop making them and concentrate on the other products, unless any of you can offer an alternative solution’.
 

Anita says that, given Collins’s figures, she has to agree with Bruce about the dressing tables. Alex comments that he hasn’t had time to look at the figures as he has been ‘snowed under’ with work. The second item is the potential new venture. Bruce passes copies of the Chinese enquiry to all those present. ‘I intimated to you all last week that we might discuss this today. Do you have any views on whether we should accept it or not?’ Anita and Alex have discussed this item before the meeting. Alex tells Bruce that the order is totally impossible, given that the workshop is getting very overstretched, and Anita agrees with him, adding, ‘How on earth do they expect us to make a profit with all these increased costs?’
 

Assignment
 

Considering Collins’s suggestion that it is probably time to employ a full time management accountant, Bruce hired a group of consultants, you, to help him to make decision. You are required to provide two reports:
 

Report 1. Discuss the decision cases regarding stopping production of the dressing tables, making the mirror sections in house once again, and the Chinese enquiry. For each case,
 

• your discussion should be supported by financial data analysis,
• and you are also expected to make recommendations and suggest other issues, rather than financial issues, which might affect Bruce’s decision.
 

Report 2. Comment on Collins’ suggestion of employing a full time management accountant. You are expected to explain the benefits of recruiting a management accountant and the potential roles of such a position in Southampton Oak. In particular, you are required to illustrate the management accounting techniques/systems that Southampton Oak could adopt or implement.
In Report 2, references should be cited to support your recommendation.
 
Product code: Case Study-QA221
 

Looking for best Case Study-QA221 online ,please click here