Harwood Medical Instruments Plc Case Study
The Case Solution of Harwood Medical Instrument PLC
Brittany D. Stewart
Finance and Accounting for Decision Making
Larmar Cunningham
June 16, 2017 Harwood Medical Instrument PLC
Harwood Medical Instruments PLC is a company that manufactures specialty medical instrument out of Birmingham, England. The company is organized is broken into divisions where each manager is assigned to supervise and operate. I will discuss the purpose of changing the system and if the new plan helps or hurt the company’s operating profit. Harwood Medical Instrument PLC
Old System
Harwood Medical Instrument’s (HMI) managing director, Andy Guthrie is worried about the company’s operating profit measure was narrowly focused. To increase performance measure …show more content…
and capitalized on operating profits, he suggested implementing a new incentive program to generate a positive turn around for the company. the change was made because the managers did not believe that the summer projections did not show favorable measures in terms of short-term performance.
New System
According to the textbook (Anthony, Hawkins & Merchant, 2011), the new plan provides a base bonus of one percent of division operating profits for the half-year period.
The base bonus includes:
• An increase in $5,000 if over 99% of deliveries are delivered on time, $2,000 if 95-99% of deliveries are delivered on time, or by zero if less than 95% of deliveries were on time.
• Increased by $5,000 is sales returns were less than or equal to 1% of sales, decreased by 50% of the excess of sales returns over 1% of sales
• Increased by $1,000 for every patent application filed with the UK Intellectual Property Office
• Reduced by the excess of scrap and rework costs over 1% operating profit
• Reduction by $5,000 if average customer satisfaction rating were below …show more content…
90%
Based on the results in 2007, the company sold a variety of products and serviced from two separate divisions. The Surgical Instruments Division and Ultrasound Diagnostic sold and serviced products at the customer’s request. In 2006, total annual bonuses for both divisions totaled to $85,000 and $74,000 individually (Anthony, Hawkins, & Merchant, 2011).
Based on the reports given, it shows that the plan has produced a positive outcome in the new program. I believe that the company employees found the new systems to be better because it shows in the numbers proved to be very significant change since the old system was implemented.
Sales returned have declined, patent applications have increased, one-time deliveries have increased along with on-time deliveries for The Surgical Instruments Division. The Ultrasound Diagnostic slumped with on-time deliveries in the first half but, in the second half, the company recovered, which earned the division a fair incentive for increased productivity.
In conclusion, I believe the new performance measures that were implemented in the new plan generated positive results for the company overall.
The incremental bonuses should be satisfactory to employees and managers as well. The new plan is a business advantage because it wasn’t a large expense burden on the company. It’s motivating for the employees to receive monetary rewards and the company succeeds in being profitable and productive. References:
Anthony, R. N., Hawkins, D.F. & Merchant, K.A. (2011). Accounting Text and Cases. (13th ed.). Retrieved from https://online.vitalsource.com/#/books/1259302172/cfi/6/70!/4/152/4/20/2@0:60.6
Lightle, S. S., & Willis, D. M. (1995). Requiring reports on internal controls: The pros and cons. Ohio CPA Journal, 54(5), 16. Retrieved from http://prx-herzing.lirn.net/login?url=http://search.proquest.com.prx-herzing.lirn.net/docview/214818991?accountid=167104
Mukuda, M. (1995). Incentive compensation. ACA News, 38(1), 21. Retrieved from
http://prx-herzing.lirn.net/login?url=http://search.proquest.com.prx-herzing.lirn.net/docview/194695950?accountid=167104
Brittany D. Stewart
Finance and Accounting for Decision Making
Larmar Cunningham
June 16, 2017 Harwood Medical Instrument PLC
Harwood Medical Instruments PLC is a company that manufactures specialty medical instrument out of Birmingham, England. The company is organized is broken into divisions where each manager is assigned to supervise and operate. I will discuss the purpose of changing the system and if the new plan helps or hurt the company’s operating profit. Harwood Medical Instrument PLC
Old System
Harwood Medical Instrument’s (HMI) managing director, Andy Guthrie is worried about the company’s operating profit measure was narrowly focused. To increase performance measure …show more content…
and capitalized on operating profits, he suggested implementing a new incentive program to generate a positive turn around for the company. the change was made because the managers did not believe that the summer projections did not show favorable measures in terms of short-term performance.
New System
According to the textbook (Anthony, Hawkins & Merchant, 2011), the new plan provides a base bonus of one percent of division operating profits for the half-year period.
The base bonus includes:
• An increase in $5,000 if over 99% of deliveries are delivered on time, $2,000 if 95-99% of deliveries are delivered on time, or by zero if less than 95% of deliveries were on time.
• Increased by $5,000 is sales returns were less than or equal to 1% of sales, decreased by 50% of the excess of sales returns over 1% of sales
• Increased by $1,000 for every patent application filed with the UK Intellectual Property Office
• Reduced by the excess of scrap and rework costs over 1% operating profit
• Reduction by $5,000 if average customer satisfaction rating were below …show more content…
90%
Based on the results in 2007, the company sold a variety of products and serviced from two separate divisions. The Surgical Instruments Division and Ultrasound Diagnostic sold and serviced products at the customer’s request. In 2006, total annual bonuses for both divisions totaled to $85,000 and $74,000 individually (Anthony, Hawkins, & Merchant, 2011).
Based on the reports given, it shows that the plan has produced a positive outcome in the new program. I believe that the company employees found the new systems to be better because it shows in the numbers proved to be very significant change since the old system was implemented.
Sales returned have declined, patent applications have increased, one-time deliveries have increased along with on-time deliveries for The Surgical Instruments Division. The Ultrasound Diagnostic slumped with on-time deliveries in the first half but, in the second half, the company recovered, which earned the division a fair incentive for increased productivity.
In conclusion, I believe the new performance measures that were implemented in the new plan generated positive results for the company overall.
The incremental bonuses should be satisfactory to employees and managers as well. The new plan is a business advantage because it wasn’t a large expense burden on the company. It’s motivating for the employees to receive monetary rewards and the company succeeds in being profitable and productive. References:
Anthony, R. N., Hawkins, D.F. & Merchant, K.A. (2011). Accounting Text and Cases. (13th ed.). Retrieved from https://online.vitalsource.com/#/books/1259302172/cfi/6/70!/4/152/4/20/2@0:60.6
Lightle, S. S., & Willis, D. M. (1995). Requiring reports on internal controls: The pros and cons. Ohio CPA Journal, 54(5), 16. Retrieved from http://prx-herzing.lirn.net/login?url=http://search.proquest.com.prx-herzing.lirn.net/docview/214818991?accountid=167104
Mukuda, M. (1995). Incentive compensation. ACA News, 38(1), 21. Retrieved from
http://prx-herzing.lirn.net/login?url=http://search.proquest.com.prx-herzing.lirn.net/docview/194695950?accountid=167104