Grand Jean Company Essay Example

managers; VP Operations has bias to his past; no non financial measures such as employee turnover, absenteeism rates, community activity; share of the marketing performance not linked to share of market; new plant equipment may distort standards and targets at individual plants; lack of timely information to corporate. Agree or disagree with plants being a profit center?

This would be a very difficult change. A profit center would overcome the hoarding, however there are a number of other factors that the plant manager does not control: market growth, sales price, sales mix, and production assignment. The plant manager controls only manufacturing costs, worker assignments, training, production schedule and plant staff.

Wicks should consider his approach on monthly quotas, possibly changing them quarterly, versus a year ahead of time, rather than implement a radical change.

If Grand Jeans manufacturing plants were treated as profit centers, three alternatives were suggested for recording revenues:

• Use the selling price recorded by Grand Jean’s sales personnel for pants sold.
• Use full standard manufacturing cost per unit plus a fair fixed percentage mark up for gross profit.
• Use the average contract price Grand Jean paid outside companies for making similar pant types.

The choice of a transfer price is difficult. The Marketing Departments will remain revenue centers. Choice (a) is objective and reliable, however the difference between this price and the plant’s manufacturing costs will result ion a large gross profit. Unless other expenses are allocated to the plants, the profit margin will exceed that of the corporation. Internal plants cannot be compared to efficient outside contractors. Option (b) is better

than (a) since it builds a fixed gross profit percentage on full standard costs. But it adds little to cost control if plants are inefficient and costs are too high. Also who decides and what is a “fair markup”.

May not necessarily motivate plants to operate a capacity, since standard costs cover all manufacturing costa at different levels. Choice (c) seems the best for comparison purposes and realism. The nature of the garment industry forces outside contractors to operate efficiently if they are to be profitable and survive. This is a market based wholesale selling price that competitors are likely paying, which is best for applying to a realistic profit margin to the plants.