Ford Motor Management Accounting

Topics: Ford Motor Company, United Auto Workers, Contribution margin Pages: 9 (3050 words) Published: April 13, 2013
Case Study Report- Ford Motor

Ford Motor Company (Ford) is an American multinational corporation which produces cars and trucks. The automaker was founded by Henry Ford and incorporated on June 16, 1903. Ford is the second largest automaker in the U.S. and the fifth-largest in the world based on annual vehicle sales in 2010. Ford introduced methods for large-scale manufacturing of cars and large-scale management of an industrial workforce, using elaborately engineered manufacturing sequences typified by moving assembly lines. In the first part of report, we will analysis the financial issue of how Ford Motor Company deals with the largest slump in sales on 2008. This will be examined in the aspect of Cost-Volume-Profit (CVP) Analysis. Then the result of the measures taken by Ford will be evaluated through the approach of Return on Investment (ROI) based on the annual report from 2008 to 2010. Recommendations by our own to Ford will be also discussed based on the result of 2010 to future. In the second part of essay, we will analysis the ethical issue involved in Ford Motor Company. The ethical dilemma of labor issue in Ford will be examined by using the concept of Corporate Social Responsibility and the IMA guidelines for ethical behavior. Lastly, we will suggest some solutions for the unethical behavior.

I. Financial Issue
In 2008, Ford has experienced the largest decrease in sales in history - a net loss of $14.6 billion due to lower demand affected by financial crisis. Ford has accumulated loss since 2006 for a total of $33 billion. Therefore, the company introduces the cost-cutting plan - One Ford Plan: Focusing on producing high quality and safety, fuel-efficient, small vehicles of its core brands to meet the lower demand of automobiles globally. On the management accounting perspective, this is done by reducing cost on workforce, and discontinued outdated brand to eliminate excessive manufacturing capacity. To reduce the cost on workforce, Ford has signed the new contract with United Auto Workers Union to reduce the hourly wage from $70 to $55 paid to the union workers in some American plants. Moreover, over the last four years, Ford has cut its North American workforce by nearly 50%, to about 65,000 hourly and salaried workers. The reduction of these workers’ expense is counted as fixed expense because workers in Ford are paid by fixed hour wages. They have to work for 40 hours per week in maximum with fixed hourly wage rate. Even though when the worker is idled because of no order received, Ford has to pay for 95% of wages as take-home pay with all benefits like health-care and retirement which cost $7.7 million. The large layoff results in a significant reduction in fixed expense for $500 million per year, explained by Ford Company. Besides, Ford has focused on the brand “Ford” and “Lincoln” by discontinuing some of the unprofitable brand, like the Mercury announced on June 2, 2009. Compared to Ford-Fusion Model, the total sales volume of Mercury is just about 5500 only, about 28.9% less than that of Ford-Fusion Model (about 19000) in 2nd quarter of 2009. Other branding like Jaguar and Land Rover was sold to the Tata Group of India for $2.3 billion in 2009. This indicates the fact that Ford would like to save the variable selling and administrative expense involved in developing these brands as well as use the earnings from selling these brands uses to reinvest into more profitable brand.

CVP analysis
By considering the above factors into CVP analysis, we can identify that worldwide sales of Ford reduced substantially due to a shift of focus in producing small cars (therefore price charged will be reduced compared to the past) as well as a lower demand for automobiles (therefore sales volume reduced.) This is consistent with its annual report for a large sales drop from $154 billion to $106 billion (decreased by 31.1%). With reduction on cost of workforce...
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