Problem statement: What are the costs relating to boots which cause returns and customer complaint in the divisions? Several cost centers have been affected by the problems in the boots department.
| ACCOUNTING COST CENTER | LEGAL COST CENTER | ADVERTISING COST CENTER | PURCHASING COST CENTER | HUMAN RESOURCE COST CENTER | LOGISTICS COST CENTER |
| Poor records for profit tracking |
Prosecution and litigation Expenses |
Increased chargebacks |
Poor knowledge of products and services Purchase of in adequate material and inferior quality raw materials |
Lack of department supervision | Delivery of wrong quantities to suppliers and consumers |
| Inadequate resource allocation | Customer compensation fees | Lack of feedback mechanism | Interruption in research and development process | Lack of proper hiring skills and incompetency | High costs of boots |
|
Incompetent personnel for Proper resource allocation |
High costs in law representatives | Poor assessment of customer satisfaction and variety provision | Conflicts of interests in production and consumption | ||
| Poor records on returns and rejects | Inadequate research on legal processes and procedures | Low stocks available for sale and Low target market | Lack of proper of employees to facilitate production organization | Poor pricing | |
| Poor reporting on declining income and profits | Poor packaging and presentation of products | Poor customer employee relation | Low consumption | ||
| Unkempt books of account for reference and comparison on performance | Inadequate measurements hence faulty sizes and unattractive appearance | Conflict between workers an management | Unpopular products | ||
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The boot division has affected various cost centers as outlined above which includes:
Accounting Cost Center which deals with financing and resources. The assessment of poor performance of boots in the market is conducted in the accounting department to determine losses which is further increased by payment of accountants and finance managers.
Legal cost center deals with cases accusations and legal steps taken against the company by customers and suppliers. Production of poor quality boots may lead to company prosecution by the customers for poor quality products which will require legal fees as an expense to the company. It is also possible that the services offered by the boots are not satisfactory to the consumers which may cause then to sue the company for refunds and fraud (Ozyasar, n.d.)..
Advertising cost center -concentrates with the sale processes. The shoe company expenses will be heightened by poor adverts which have no effects on sales. Advertising can be limited by inadequate sales skills set such as poor convincing, persuasion and assurance which are necessary skills to enhance sales an increase profits (Ozyasar, n.d.). Availing low quality products will cost the company in persuading and winning customers lead to customer wrath, anger and impatient as they expect perfection which may be unavailable to customers (Kimmel et al., 2008).
Human resource cost center the company will experience huge losses if it retains incompetent, dishonest and semi-skilled workers. The products will be of low quality with high costs due to wastage of resources and conflict resolutions leading to wastage of hours of production.
Purchasing cost center-The shoe company and especially the boot division is affected by the purchasing cost center. Making poor decisions on purchases will affect the company profit margins by increasing overheads costs arising from poor quality and quantities. The company will operate under fixed costs on expenses such as electricity or water regardless of the products and production of inadequate boots will be costly to the company due to losses in purchases of raw materials (Kimmel et al., 2008).
Logistics cost center- the shoe company has been affected by the returns and complaints in the boot division due poor organization in delivery, transfer suppliers and storage (Ozyasar, n.d.). The company incurs costs for delays, prolonged storage and inefficient handling of orders from customers (Kimmel et al., 2008). Poor logistics will cost the company even the loyal customers due to time wastage and inconveniences in delivery. The affinity diagram presents an evaluation of the various costs center affected by the boots division. Most of the cost centers are negative and expensive as they lead to increased losses which affects the operations of the company and its survival in the highly competitive industry.
References
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2008). Accounting: Tools for business decision making . Chichester: John Wiley.
Ozyasar, Hunkar. (n.d.). What Are the Functions of a Cost Center in a Management Accounting System? Small Business - Chron.com. Retrieved from: http://smallbusiness.chron.com/functions-cost-center-management-accounting-system-76935.html
