In partial fulllment fulllment Of the requirements for the Degree of Bachelor in Accountancy
Case Study: Tru-it !arts" Inc#
Su$mitted $y: Dela Rosa, Roselyn Gubaton, Michelle Paulino, Raniel Cornelia Tan, Tan, Jessica
Synthesis ACT196
April 2, 2!1"
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Introduction
#A $anu%acturin& business is any business that uses co$ponents, parts or ra' $aterials to $a(e a )nishe* &oo*+ These )nishe* &oo*s can be sol* *irectly to consu$ers or to other $anu%acturin& businesses that use the$ %or $a(in& a *ierent pro*uct+#-2!!", .ill/ #Auto$oti0e in*ustry is those co$panies an* acti0ities in0ol0e* in the $anu%acture o% $otor 0ehicles, inclu*in& $ost co$ponents, such as en&ines
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an* bo*ies, but eclu*in& tires, batteries, an* %uel+#-Rae an* in*er/ Bac%ground Tru34it Parts, 5nc+, is a $anu%acturin& co$pany o% 0arious parts o% auto$obiles, truc(s an* %ar$ euip$ent+ 5t can be classi)e* into three parts such as i&nition parts, trans$ission parts, an* en&ine parts+ Their $ar(ets are the ori&inal3euip$ent $anu%acturers -78M Mar(et/ an* the a%ter$ar(et -AM/ 'ho is a )rst lin( 'holesaler in the *istribution channel o% replace$ent parts+ 5n co$panys or&ani:ational chart, each $a;or part has its o'n $anu%acturin& *i0ision < 5&nition Parts Di0ision, Trans$ission Parts Di0ision, 8n&ine Parts Di0ision, an* AM Mar(etin& Di0ision+ =n*er these *i0isions, they are in char&e in sellin& these pro*ucts asi*e %ro$ $anu%acturin& the$+ Also, they are consi*ere* as an in0est$ent center+ The top $ana&e$ent set its &oal to increase to !> the AM portion o% the outsi*e sales as o% ?> co$in& %ro$ al$ost one3thir* o% its outsi*e $anu%acturin& sales *i0ision+ Accor*in& to the co$panys eecuti0e o@cers, the critical success %actors in the 78M Mar(et na$ely -1/ the ability to *esi&n inno0ati0e an* *epen*able
parts that $et
the
custo$ers per%or$ance
an*
'ei&ht
speci)cations -2/ $eetin& 78M *eli0ery reuire$ents so that the 87M co$pany coul* $ini$i:e its in0entories -B/ controllin& costs, since the
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$ar(et 'as 0ery price3co$petiti0e+ Discussion &Denition of Terms'
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Original (quipment )anufacturers &O()' < a co$pany 'hose &oo*s are use* as co$ponents in the pro*ucts o% another co$pany, 'hich then sells
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the )nishe* ite$s to users+ Aftermar%et &A)' < secon*ary $ar(et o% the auto$oti0e in*ustry, concerne* 'ith the $anu%acturin&, re$anu%acturin&, *istribution,
an*
installation o% all 0ehicle parts, euip$ent an* accessories a%ter the sale by
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the ori&inal euip$ent $anu%acturers+ In*estment Centers < a 'ay to classi%y an* e0aluate a *epart$ent base* on its re0enues, costs, an* asset in0est$ents a business unit that can utili:e
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capital to *irectly contribute to a co$panys pro)tability Intercompany sales < internal sales transactions bet'een t'o or $ore
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a@liates or business units o% the sa$e parent co$pany +eturn on In*estment &+OI' < this is a per%or$ance use* to e0aluate the e@ciency o% an in0est$ent Budgeted Profit Target ROI Actual beginning of year net assets
Actual Profit Actual ROI Actual beginning of year assets •
Imputed income ta, < the 0alue o% a ser0ice or bene)t pro0i*e* by
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e$ployers to e$ployees, 'hich $ust be treate* as inco$e et assets Total assets – Current Liabilities Bottom line < co$panys inco$e a%ter all epenses ha0e been *e*ucte*
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%ro$ re0enues net earnings Incremental prot < pro)t &ain or loss associate* 'ith a &i0en $ana&erial
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*ecision Corporate earnings per share < portion o% a co$panys pro)t allocate* to each outstan*in& share o% co$$on stoc( ser0es as an in*icator o% a
co$panys pro)tability
Net incomeDividends on Preferred Stock Earnings Per Share AverageOutstanding Shares I.#
!ro$lems (ncountered The top $ana&e$ent o% Tru34it Parts, 5nc+ $entione* three areas o% concern in their business+ 7ne is about the %e' *isputes o0er trans%er prices %ro$ the $anu%acturin& *i0isions to the a%ter$ar(et -AM/ Mar(etin&+ or$ally, these issues 'ere resol0e* by the t'o *i0isions in0ol0e*, but so$eti$es the corporate controller 'as as(e* to strai&hten out the conEict+ Secon* is that the $ana&e$ent %elt that the AM Mar(etin& is treate* as a Fcapti0e custo$er by the $anu%acturin& *i0ision+ They consi*ere* the o0erall i$a&e o% the co$pany %earin& that it 'oul* be &reatly aecte* i% the AM Mar(etin& 'ill sell a co$petitors pro*uct+ An* lastly, $ost o% the year, the $ana&e$ent thin(s that both AM Mar(etin& an* the three $anu%acturin& *i0isions carrie* ecessi0e in0entories+ Accor*in& to the controller, there is only *ecrease* in the in0entory because pro*uction 0olu$e is lo' *ue to
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e$ployee holi*ay 0acations+ Conclusion The co$pany basically %ocuse* $uch on 'hat &enerates the $ost re0enue an* has %or&otten to &i0e $uch attention on enhancin& the 'ea( part o% the $ana&e$ent+ 78M Mar(ets shoul* also be &i0en i$portance because enhancin& this part 'ill increase its re0enues an* coul* as 'ell be an a*0ertisin& a*0anta&e %or the$ since attachin& their parts to euip$ent $anu%acturers 'ill pro0e its per%or$ance to custo$ers an* suppliers+ 5n0entory $ana&e$ent is one o% the thin&s to be i$pro0e* on 'hich coul* be
a**resse* easily i% proper place$ent o% in0entories accor*in& to 'hat $ar(et
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it 'oul* be sol* is to be present in the %actory+ +ecommendation To a0oi* *isputes, trans%er prices $ust then be )rst establishe*+ 5n the case o% 78M pro*ucts, it rarely encounters *isputes since trans%er prices are alrea*y establishe* %or the$+ 5t there are no a0ailable *i0ision on any o% the three, prices $ay be set by co$parin& 'ith other si$ilar co$panies+ ut, asi*e %ro$ this option, they $ay opt to co$pute the $anu%acturin& costs 'ith its correspon*in& $ar( up on price+ 5n the *i0isions $entione*, AM Mar(etin& has been pro0i*in& the $ost outstan*in& per%or$ance in the or&ani:ation+ Hhat they coul* *o to a**ress the issue $entione* is to establish a co$petiti0e trans%er price that 'oul* a** up to $ore bene)ts $a(in& it $ore attracti0e+ ut, asi*e %ro$ this a*0anta&e, another issue to be settles 'as the ecess in0entories $ost o% the year+ This $ay be the case because they $i&ht ha0e %ocuse* $uch on %orecastin& that they ha0e yet to use the i*ea o% chec(in& pre0ious transactions an* e0ents to (no' ho' $uch in0entories are nee*e* %or the year+ The co$pany shoul* be open to enhancin& the AM Mar(ets, not only the 78M Mar(ets+ This 'ill help re0enue rise because since AM Mar(ets alrea*y &enerate $ore re0enue %or the co$pany, enhancin& 78M Mar(ets 'ill increase re0enues $uch $ore+ Also, incenti0es 'oul* be &oo* as 'ell because it 'ill encoura&e the$ to 'or( better+ Thou&h it 'oul* see$ un%air to &i0e those o% hi&her position a better incenti0e, it 'ill be an inspiration %or those at the lo'er position to &i0e out their best per%or$ance+
