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An in-depth analysis of tesla's non-financial performance measures and budgetary control strategies. It discusses the importance of non-financial measures like innovation, customer satisfaction, and employee satisfaction, and how tesla tracks and improves these metrics. The document also covers budgetary control, its advantages, and the challenges tesla faces in maintaining financial stability while innovating in the electric vehicle industry. Useful for university students, particularly those studying business, management, or economics, as it offers insights into strategic management, performance measurement, and cost control.
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Question 2 Modern business environments are highly competitive and rapidly changing, driven by e- commerce and agile supply chains. Companies need clear strategies and must leverage management accounting tools like non-financial metrics, budgeting, and balanced scorecards. However, before using these tools, companies must first identify their core business -
products/services, customers, markets, and channels. With this self-awareness, management accounting tools can enable strategic planning, decision-making, and control. Tesla, Inc. is a leading American multinational corporation that designs, manufactures, and sells electric vehicles (EVs), battery energy storage from home to grid-scale, solar panels and solar roof tiles, and related products and services. Founded in 2003 by engineers Martin Eberhard and Marc Trepanning, the company is named after inventor and electrical engineer Nikola Tesla. Tesla is known for its innovative approach to electric vehicles and its visionary CEO, Elon Musk. They have played a major role in accelerating the adoption of electric vehicles and clean energy solutions worldwide. a. Non-financial performance measures Non-financial performance measures are quantifiable indicators employed to evaluate the performance of a business or organization that are not directly related to financial outcomes. By utilizing non-financial performance measures, businesses can assess their performance in areas that contribute to long-term success and sustainable operations, transcending the mere pursuit of financial profitability (Kaplan and Norton, 1996 ). Advantages Non-financial performance measures (NFPMs) are a game-changer for businesses seeking a competitive edge. They move beyond the limitations of financial data, providing insights into crucial areas like customer satisfaction and employee engagement (Drury, 2013). By wielding NFPMs strategically, businesses can not only predict future financial performance but also take proactive steps to ensure long-term success. Disadvantages While non-financial performance measures (NFPMs) offer valuable insights into a company's health beyond profits, they come with certain challenges. These challenges include subjectivity in measurement, the potential for inaccurate data, and the risk of misinterpreting the results. However, by carefully choosing relevant NFPMs, ensuring data quality, and interpreting the results in context, companies can still leverage these measures to gain a well-rounded view of their performance and make informed strategic decisions (Ittner and Larcker, 2003). Non-Financial Measures for Tesla:
contests, fostering a culture of engagement and empowering employees to contribute new ideas. These efforts aim to maintain a highly engaged and motivated employee base at Tesla. Advantages of Non-Financial Measures By tracking non-financial measures (NFPMs) like delivery happiness score and Net Promoter Score, Tesla can identify customer pain points and enhance customer satisfaction, leading to increased loyalty and potential business referrals. Metrics such as employee satisfaction surveys and retention rates help Tesla improve work culture and employee engagement, fostering a competitive workforce. Monitoring innovation metrics like patent applications and employee suggestions aids Tesla in identifying R&D opportunities, ensuring continuous innovation. Tracking manufacturing cycle time and quality control metrics enables Tesla to streamline production processes, reduce costs, and enhance product quality. Overall, high customer satisfaction, positive social media sentiment, and a focus on innovation contribute to Tesla's strong brand image, attracting talent, building trust, and driving sales growth. Disadvantages of Non-Financial Measures Certain non-financial measures like "delivery happiness score" can be subjective, influenced by factors beyond Tesla's control, such as weather conditions or personal expectations, making it challenging to track progress objectively over time. The effectiveness of NFPMs relies on the quality of data collected; low participation rates in employee satisfaction surveys or incomplete social media sentiment analysis can lead to misleading conclusions. High customer satisfaction scores or a strong NPS may not always directly correlate with financial success, necessitating interpretation in the context of broader market trends. Implementing a robust NFPM system requires resources, including time and budget allocation, for surveys, interviews, and data analysis. Analyzing NFPMs in isolation can be misleading; for instance, a high employee suggestion rate may not reflect responsiveness if suggestions are not implemented, highlighting the importance of integrating NFPM data with other metrics for a comprehensive assessment. b. Budgetary Control
Budgetary controls are the processes and procedures used by organizations for effective financial planning, monitoring, and control (Horngren et al., 201 9 ). Advantages Budgetary control helps in setting clear objectives and targets for different departments or functions within the organization. This ensures that everyone is working towards common goals and facilitates better planning of activities and resource allocation. By establishing budgets, organizations can allocate resources such as finances, manpower, and materials in a way that maximizes their utilization and supports strategic priorities (Drury, 2013 ). This helps in avoiding over-spending or under-utilization of resources. Budgetary control enables the comparison of actual performance against budgeted targets. This allows managers to identify deviations, analyze the reasons behind them, and take corrective actions as necessary. Budgetary control helps in controlling costs by setting limits or standards for various expenses. It provides a basis for evaluating cost-effectiveness and identifying areas where costs can be reduced or optimized (Hilton et al, 2008). Disadvantages Non-financial measures (NFPMs) like customer satisfaction scores offer valuable insights, but limitations exist. These measures can be subjective and influenced by external factors (Kaplan and Norton, 1996). Additionally, low participation rates or incomplete data analysis can lead to misleading results. High NFPMs don't always guarantee financial success, and require interpretation within the market context. Implementing and analyzing NFPMs requires resources and integration with other metrics to ensure a comprehensive and accurate picture (Ittner and Larcker, 2003). Budgetary Control for Tesla Tesla prioritizes strict budgetary control to ensure financial stability and profitability. This focus is evident in internal communications, like a May 2019 memo from CEO Elon Musk emphasizing the urgency of cost control and achieving profitability. Musk highlights the importance of even small savings, demonstrating Tesla's meticulous financial oversight (Musk,
c. Balanced Scorecard The Balanced Scorecard is a strategic management tool that provides organizations with a comprehensive view of performance across multiple perspectives: financial, customer, internal processes, and learning and growth. It enables managers to align strategies with objectives, measure progress, and make informed decisions. By integrating financial and non-financial metrics (Kaplan and Norton, 2010) Advantages The Balanced Scorecard offers a significant advantage over traditional, purely financial performance measures. It provides a well-rounded view of a company's health by considering not just the bottom line, but also customer satisfaction, internal processes, and employee learning and growth (Kaplan and Norton,1996). This holistic approach allows businesses to make strategic decisions based on a broader range of factors. By understanding how satisfied customers are, how efficient internal processes are, and how invested employees are in innovation, companies can identify areas for improvement across the organization. This ultimately leads to a more sustainable competitive advantage and long-term success. Disadvantages The Balanced Scorecard provides a well-rounded view of a company's performance, but it's not without drawbacks.Implementing it can be complex, requiring careful planning and potentially a cultural shift within the organization. Additionally, some chosen metrics, like "employee morale," can be subjective and make tracking progress difficult.Despite these limitations, the Balanced Scorecard remains a valuable tool for businesses seeking a more comprehensive performance picture (Kaplan and Norton,1996). Perspectiv e Objectives Measures Targets Initiatives Financial Increase profitability and shareholder
value - Return on investment (ROI) 20% Achieve an ROI of 25%. Semi truck)
Question 3
1. Budgeted cost Product A (unit) Product B (unit) Product C (unit) Product D (unit) Selling price (£) 28 34 48 46 Direct material costs (£) 5 9 12 8 Direct labor costs (£) 5 5 10 10 Variable overhead (£) 3 3 6 6 Variable costs per unit (£) 5+5+3 = 13 9+5+3 = 17 12+10+6 = 28 10+8+6 = 24 Contribution margin per unit (£) 28 – 13 = 15 34-17 = 17 48-28 = 20 46-24 = 22 Machine hours 4 3 4 5 Contribution margin/machine hour (£)
Fixed overhead (£) 8 8 16 16 Profit (£) 7 9 4 6 Labor hours 1 1 2 2 Maximum units demand per week ( Quantity demanded)
Rank (Contribution per limited factor) 4th 1st 2nd 3rd The cumulative machine hour requirements across all operations amount to 2,840 hours (800 + 540 + 1,000 + 500 = 2,840). These machine hour requirements surpass the available capacity of 2,000 hours at Office Base PLC, thereby indicating that machine hour availability is the constraining factor in this production scenario.
Machine hour allocation for products A, B, C, and D will prioritize contribution margin, considering a maximum weekly capacity of 2,000 machine hours and an expected weekly labor capacity of 1,000 hours. As Product B has the highest priority, machine hours should first be allocated to meet its production requirements. To produce the maximum market demand of 180 units for Product B, 540 machine hours are needed (180 units x 3 hours per unit = 540 hours). Therefore, upon allocating the requisite 540 machine hours to facilitate the production of 180 units of Product B, in accordance with the assigned highest priority and market demand, the residual machine hour capacity would be 1,460 hours, derived by deducting the 540 hours from the initial available capacity of 2,000 hours (2,000 - 540 = 1,460 hours). Based on the available machine capacity, allocating the machines to Product D presents the most efficient utilization. With a total of 460 machine hours and a per-unit machine time requirement of 5 hours for Product D, this allocation would enable the production of 92 units. Consequently, due to insufficient machine hour capacity, production of Product A is not feasible within the current allocation. Profit Statement of Venus Plc (Period: a week) Revenue (£) 18034 + 25048 + 92*46 = 22, 352 Variable costs (£)
Fixed costs (£)
Profit (£)
2. The critical evaluation of the overtime strategy
Activity-Based Costing (ABC) is a costing method that assigns overhead and indirect costs to specific activities related to the production of goods and services (Kaplan and Anderson, 2007). The advantage of Activity-Based Costing (ABC) in service industries lies in its ability to provide a more accurate understanding of costs by assigning them to specific activities or tasks within the production process. Unlike traditional costing methods that allocate overhead costs based on broad categories, ABC offers a detailed insight into resource utilization and cost allocation. In service industries, where activities may vary widely and have different cost drivers, ABC helps in identifying the true costs associated with each service activity. This precision in cost allocation enables service businesses to make informed decisions regarding pricing, resource allocation, and process efficiency. By accurately determining the costs of each activity, service industries can enhance cost management, improve profitability, and optimize their operations for better performance and competitiveness (Kaplan and Cooper, 1988) While Activity-Based Costing (ABC) offers a more detailed picture of costs in service industries, it comes with limitations. Implementing ABC requires significant time and resources to track activities, collect data, and perform analysis (Drury, 2013). Existing accounting systems may not readily provide the necessary data, further complicating the process. Additionally, reports generated by ABC may not be compatible with standard accounting principles, limiting their usefulness for external reporting. These challenges can hinder the practical application of ABC in service industries. Lotteria, a fast-food chain, can benefit from Activity-Based Costing (ABC) due to its diverse service offerings and customer interactions. ABC enables Lotteria to accurately allocate costs to specific activities like food preparation, customer service, and store maintenance, providing a detailed understanding of cost drivers. By implementing ABC, Lotteria can enhance cost accuracy, inform decision-making, improve productivity, and analyze profitability of different services or product lines. However, Lotteria may face challenges in identifying and measuring activities and their cost drivers, which can be overcome through proper data management, employee training, and change management strategies to leverage the benefits of ABC in cost management and operational efficiency.
Reference P., K., R.S.&. Norton, D. (1996) Using the balanced scorecard as a strategic management system. Horngren, C.T., Datar, S.M. and Rajan, M.V. (2019) Cost accounting: A managerial emphasis. Beijing: Zhongguo ren min da xue chu ban she. Kaplan, R.S. and Norton, D.P. (2010) The balanced scorecard: Measures that drive performance. Boston, MA: Harvard Business Review Press. Harter, J. K., Schmidt, F. L., & Hayes, T. L. (2002). Business-unit-level relationship between employee satisfaction, employee engagement, and business outcomes: A meta-analysis. Journal of Applied Psychology, 87(2), 268–279. [DOI: 10.1037/0021-9010.87.2.268] Hammer, M., & Champy, J. (1993). Reengineering the Corporation: A Manifesto for Business Revolution. HarperBusiness. [ISBN: 978-0060559533] Christensen, C. M. (1997). The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. Harvard Business Review Press. [ISBN: 978-1633691780] Kaplan, R. S., & Anderson, S. R. (2007). Time-Driven Activity-Based Costing: A Simpler and More Powerful Path to Higher Profits. Harvard Business School Press. Kaplan, R. S., & Cooper, R. (1998). Cost & Effect: Using Integrated Cost Systems to Drive Profitability and Performance. Harvard Business School Press. Drury, C. (2013). Management and Cost Accounting. Cengage Learning EMEA. Ittner, C. D., & Larcker, D. F. (2003). Coming Up Short on Nonfinancial Performance Measurement. Harvard Business Review, 81(11), 88-95. Musk, E. (2019, May). Internal Memo on Cost Control. Tesla Inc. Kaplan, R. S., & Norton, D. P. (1996). The Balanced Scorecard: Translating Strategy into Action. Harvard Business School Press.
