Essay on Airtex Aviation - Cost Control Study Case

Words: 1747
Pages: 7

Executive Summary

Two managers recently graduated purchase Air Tex Aviation, a firm on the verge of bankruptcy. In front of the discrepancies of the current control system, Ted Richards and Frank Edwards decide to implement a system which improves transfer pricing, cost allocation and autonomy. Therefore, this case wonders about the difficulties to implement it and the steps to change the management style. It

What appears to be the problem in Air Tex is linked to business which is linked with the state of mind of the staff: there is a lack of motivation. The company is on the verge of bankruptcy because of Sarah Arthur’s accounting system and accounting statements. We know that it is a problem because of the self-interested
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To motivate managers, there is also the creation of incentives for managers: they can receive a bonus of 10% of their profit centres profit

Another source of motivation for the departments consists in offering them to manage cash by giving them receivables: the new management control system gives them a credit granting authority, a responsibility for collections and systems of charges for delay payment.

Furthermore, autonomy is the capacity to act by oneself and it’s an inner freedom, and ability to choose oneself to increase the motivation of managers. Its autonomy is strengthened because managers can hire, fire and manage the salary schedule.

The new management control system modifies the transfer pricing, which refers to the pricing of assets, services and funds that transferred within an organization.
It’s simply the act of pricing of goods and services or intangibles when the same is given for use or consumption to a related party ». 1 So, it’s the price at which products or services are transferred between profit centres or subunits, which affects the allocation of the total profit among the parts of the company. There can be internal (motivate managers and monitor performance) and external
(taxes or tariffs) reasons for