Q1. Polar (S) Limited. Polar (S) Limited is a Singapore public listed company that specializes in marine, property, and infrastructure business. From the case study we can see that in 2014, both the company’s revenue and net profit had an increase of 7% and 3% respectively when compared to 2013. The increase was due to the ongoing marine projects overseas and infrastructure business, this would suggest that the company’s property business may not be as strong. The case study also explains that 2015 will be a tough year for Polar, due to a severe drop in oil prices as Polar has its Marine business. Furthermore the Eurozone market recovery remains weak and China is expecting to grow at a slower rate, as China exports most of its products and services to the rest of the world, many countries including Singapore will be affected if Power house countries such as China slows down.
Over the past few decades, OECD (Organization for Economic Cooperation and Development) countries has experienced a structural shift from manufacturing sector towards the service sector. This trend is also commonly known as deindustrialization, which has led to the “hollowing out” of the manufacturing sector, this is one of the key changes in Polar’s business environment. In Singapore, increase in labor shortage, rise in cost in the past decade and similar concerns have been raised. Slowly, Singapore’s manufacturing industries are relocating to neighboring economies, while at the same time employment and income have shifted towards the service sector. (Lee, 2001) Singapore is trying to move away from low end industries such as manufacturing, to focus on value added sectors such as biotechnology, investments, and pharmaceuticals.
This change in Singapore economy structure will ultimately have a negative effect on the company’s ability to compete within Singapore, and the rise in shortage of labor and cost will only make it harder for Polar to compete within Singapore. In the past, companies would keep their headquarters and operations in Singapore and replicate another center in other countries for marketing purposes, however now there are groups of businesses that are actually uprooting part of their operations and shifting it out as they are not able to survive (Yasmine , 2013).
However as mentioned the company has projects and businesses oversea therefore Polar may chose to focus on its operation overseas rather than mainly in Singapore. Many manufacturing companies in Singapore are currently relocating to other countries where labor are cheaper such as Malaysia, Vietnam and Indonesia. Other strategies that Polar could take are joining an alliance which is considered a defensive strategy which is ideal for the business environment of Singapore as we have previously discussed the rise of shortage of labor and cost has made Singapore a very challenging country to operate in. Competitive advantage can be obtained by businesses that seek strategic alliance with other businesses in the related industries or within the same industry.
An alliance is similar to a joint venture whereby companies pool resources and gain themselves exposure at the expense of other competitors not in the alliance (Jared, 2015). One of key challenges that Polar is also facing is its internal costing and management accounting systems. The case study states that Polar conducted an interview and discovered that senior managers were delegating the analysis of the cost reports to subordinate managers as they were too occupied with several different information at the same time. Other problems discovered include the reliability of the monthly reports as many managers consider it to be useless for decision making. Junior managers considered the budget set to be too unrealistic and thus ignored it and had no constraint on their spending. Thus these problems suggest that Polar’s management accounting team needs to re-evaluate the costs and benefits of the information they provide to their managers.
The information provided to the managers are crucial for decision making and projections, typically these information include, sales figures, expenses, investments, and workforce data, however sometimes too much information may swap or overwhelm a senior manager. Therefore information provided to managers should be, easy to understand, if a report is easy to understand it will likely catch the attention of the reader more. The report must have a clear defined purpose as it is pointless to provide senior management information that are not related for decision making. Report information should also be accurate as any inaccurate information may skew results and cause the company to make an ill-advised business decision (Laura, 2015).
Q2a. Drug Addict Assistance Association (DAAA) 2015
Opening Balance 400,000.00 Fixed Expenses (150,000.00) Remaining Balance: 250,000.00
Variable Cost Per Patient (400.00) No. of Patient 625 Total Variable Cost: (250,000.00)
Chart 1. From the above chart it shows that the budget for 2015 is 400,000 assuming that they are no remaining balance to be brought up from 2014. The fixed expenses or sunk cost (Example: Rent and utilities) are 150,000 therefore the remaining balance would be 250,000. To identify the breakeven point in units is: Total Fixed Cost / Contribution Margin per Unit, however as DAAA is a non-profit organization we will be unable to get the contribution margin per unit. Therefore to identify the number of patient that can be treated by DAAA without incurring a lost, we would have to identify the breakeven point using much simpler methods. In this case we have identified the remaining balance of the budget after sunk cost therefore breakeven point can be calculated by Remaining balance $250,000 / Variable cost Per Patient $400, the maximum number of patient is 625.
Q2b. Drug Addict Assistance Association (DAAA) Forecast of 2016
Opening Balance 400,000.00 Less 10% in Donations (40,000.00) Fixed Expenses (150,000.00) Remaining Balance: 210,000.00
Variable Cost Per Patient (400.00) No. of Patient 525 Total Variable Cost: (210,000.00)
Chart 2. From chart 2 we can see that assuming a drop of 10% in donation for 2016, after fixed expenses the remaining balance would be 210,000. With both fixed cost and variable cost per unit remaining constant, we can calculate that the maximum number of patients that can be treated is Remaining Balance $210,000 / Variable Cost per patient 400 = 525 patients. Compared to the number of patient in 2015 there is a reduction of a 100 patients in 2016.
Q2c. Drug Addict Assistance Association (DAAA) Forecast of 2016
Opening Balance 400,000.00 Less 10% in Donations (40,000.00) Fixed Expenses (150,000.00) Remaining Balance: 210,000.00
Variable Cost Per Patient 400.00 Reduction to meet BP: 64.00 New Variable Cost: (336.00) No. of Patient 625 Total Variable Cost: (210,000.00)
Chart 3. From chart 3, as DAAA wished to maintain the same level of service to every patient while not reducing the maximum amount of patient from Q2a. The amount of variable cost that need to be reduced can be calculated as Remaining balance of Q2b, $210,000 / No. of Patients of Q2a. 625 = Variable cost per patient $336. Therefore for DAAA to reach BP (breakeven Point) while serving the same amount of patients from Q2a, the variable cost would have to be reduced by $64.
Some steps that can be taken in order to reduce variable cost is to shop around for supplies. In order to determine which supplier is able to provide the best value to DAAA, as DAAA uses prescription during its counselling some suppliers may be able to provide these supplies at a lower rate compared to others. DAAA can also consider to purchase these prescriptions in bulks as suppliers tend to charge a lower price when goods are purchased in bulks. (Lindsey, 2015)
