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Case Study: Electronic Boards plc
Question
Case Study: Electronic Boards plc
John innes and Falconer Mitchell, University of Edinburgh
This is a general case on the design of a management and cost accounting system for a firm operating in a high-tech environment. It provides an opportunity for a broad discussion not only of the appropriateness of particular accounting techniques but also of the need to consider strategic, behavioral and organizational factors.
Introduction
Jack Watson, an electrical engineer, established Electronic Boards plc as a “one-man” company in the early 1980s. From small beginnings, the company earned a reputation for the quality and reliability of its products, and grew rapidly and consistently until, by 2011, it employed over 200 people and had achieved a turnover of $56 million and a profit after tax of $4.1 million. In addition to Jack Watson, the managing director, the board consists of a production director, a research director and a marketing director.
Market circumstances
The company produces customized batches of electronic circuit boards for approximately 15 major customers in the defense, computer, electrical goods and automotive industries. The market is highly competitive in respect of both price and quality. Market price has fallen steadily in recent years. In addition to several other independent firms both form the UK and Far East, many of their larger customers have in-house facilities for the production of circuit boards. These latter firms deliberately subcontract a portion of their circuit board requirements for strategic reason. In a recession they can cease or reduce their subcontracting and bring the work in-house, so stabilizing their own employment levels.
Operational circumstances
Recession
In 2011 the firm experienced its first recession. Market share fell, sales dropped to $21.5 million, a loss of $1.7 million was made and the company’s liquidity suffered considerably. The market decline was expected to continue in 2012 and the managing director of Electronic Boards plc sought ways of alleviating the effects of the recession on the company’s financial performance. He found, however, that the lack of management accounting information hampered him in pinpointing problem areas and in identifying cost-reduction possibilities. Consequently, he approached a firm of management consultants to provide a blueprint for the development of a management accounting system over the next two years.
Summary
The case study belongs to Strategic Management Accounting. The case study is about Electronics Boards, a company started in the 80s, which was appreciated for its good products and good profits. During the recession, the company suffered losses and it was pointed out that the lack of management accounting system was one of the reasons. Implementing Strategic Management Accounting system has been given in the solution.
Total Word Count 501
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