ASSIGNMENT ON MANAGEMENT ACCOUNTING
TOPIC- INDUSTRIAL GRINDERS N.V. CASE
ABHISHEK PRATAP SINGH-/1
QUESTION-WHAT ACTION SHOULD BRIDGEMAN TAKE? WHY?
In this case, defining the problem is very important. The problem is that French firm Henri Poulenc produces a plastic ring to substitute from the steel rings used in certain machines sold by Industrial Grinders and this plastic ring is a new product to market. It has longer life but lower cost. Now Bridgeman’s problem is I.G’s large quantity of steel rings are on hand and the substantial inventory of special steel for their manufacture. And this steel as inventory can’t be sold. I.G had manufactured industrial machines for sale in numerous countries for nearly 70 years. It means it has market to sale rings no matter whether it is steel or plastic ring. These rings could be supplied for their own machines too. In general the plants were allowed considerable leeway in administering their own affairs. Bridgeman has right to make market strategy in time. During slack periods, company has a policy of employing excess labor on various make-work projects rather than laying the men off. At that time, the salary is at about 70% of regular wages. Low labor cost will decrease the cost of production. There are a lot of steel rings on hand and can’t be sold. The total book value of these inventories exceeded $93,000. Large inventory means less liquid cash. Maybe it influences operation in the future. Now I.G only has steel rings and these rings have higher cost than plastic rings. Also the lives of steel rings are shorter than plastic rings. I.G’s competitor Henri Poulenc has already started selling plastic rings at the same price as steel rings. And if I.G makes plastic rings, it can start selling only after 4 months so by then Henri Poulenc will take over more market shares. The competitiveness of I.G is very weak now....
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