STRATEGIC MANAGEMENT ACCOUNTING

EPPA6534
TASK 3 – CASE STUDY B2 INC

6 DECEMBER 2021

PREPARED BY:
NURSYAHIRAH AISYAH BINTI ROSLAN P113300
DUAN SHU TIAN P104844
IBRAHIM ALDULAIMI P106967
XUE QIYUN P106625

LECTURER:
DR. RUHANITA MAELAH

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1. INTRODUCTION

Buck Rogers and his partner Bethan not only embraced the concept of
sustainable farming, not all of which involved organic farming methods, but has a
strong focus on the farming techniques that have high yields of high quality crops that
work with, and lives alongside, the natural environment and participate in the
development trend of agriculture.

After five years of hard work, their reputation spread quickly and a customer list
was established, which included providing fresh organic produce to some of the best
restaurants in the area. Under the guidance of the successful restaurant entrepreneur
Alejandra Hermanes, this restaurant has achieved great success.

B2 Inc. is a highly diversified company that initiated from farming and then paved
its path towards dairy, animal, vineyards, wine production, restaurants, fish farms,
renewable energy, forestry, land management and waste management. The company
has been highly effective and efficient in business decisions with the core focus
towards sustainable business philosophy supporting its growth and development. The
main cash cows for B2 Inc. includes restaurants, farms, wine production and vineyards.
Restaurants are relatively new ventures started by the company.

However, B2 Inc.'s business philosophy is to focus on the development of

environmental business, and it regards investment in the environment and sustainable
development as an opportunity to obtain more profit. Currently B2 Inc. is not listed on
the stock exchange and is still a private company. Over the years, Buck and Besson
have raised enough funds from private investors with the same goals and beliefs.
Therefore, a year ago, Besson bought a piece of land bordering a charming medium-
sized town for US$2 million to create an outdoor leisure pursuit center and has a hotel
and holiday house complex.

This discussion details the problem faced by the company and how
management accountant can contribute towards the solution.

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2. PROBLEM/ISSUES

(i) High cost of restaurants with boutique hotel rooms

Restaurants can be classified in several ways. For example, full-service

restaurants provide complete menus and seating facilities; fast-service restaurants
provide more limited menus, limited seating and takeaway options; cafeterias and
buffets provide a more casual way of dining, often with self-service elements.
Therefore, in order to highlight the characteristics of the restaurant and attract more
customers, B2Inc. locates the restaurant in the city center or fashionable urban area,
which can not only attract a series of commercial customers, but also attract people
who spend the night in the city.

The four restaurants have boutique hotel rooms, and in these four restaurants,
only the breakfast menu is available. A boutique hotel is a stylish small hotel, usually
located in a fashionable urban area. All restaurants are in stunning buildings, which
adds to the entire dining experience. However, it is costly to build, which means that
restaurants need to attract a reasonable number of customers to achieve a balance of
payments.

(ii) High degree of autonomy and investment in training fees are an important
reason for the high turnover rate of employees

Many restaurants are based on the reputation of the chef, so finding the right
staff is also a factor in success. The restaurants within the company are all operated
independently, giving employees a high degree of autonomy, which means that they
do not operate as a chain restaurant with ordinary menus. Each restaurant manager
and chef has enough space to design a menu for their specific location. Buck
encourages chefs and managers to exchange ideas and encourages them to start
their own businesses and build their own restaurants if they want.

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 This ensures that key employees are always highly motivated, committed to
trying new things, keeping menus and restaurants fresh and up-to-date, while always
adhering to the basic philosophy of high standards and quality. The disadvantage of
this is that the young talented chef did leave and opened his own restaurant. Funds
invested in training employees are one of the factors that many employees tend to
stay in restaurants for a reasonable period of time. In the first year of employment,
sustainable restaurants can spend up to 50% of their wages on training costs.

(iii) High complexity of factors makes it more difficult to design a reasonable

menu

Affected by crop yields or weather conditions, that is, the physical environment,
seasonal factors need to be considered when designing the menu, especially if
locally produced raw materials are used.

A large part of the failure of restaurants is that the menu selection or pricing
does not match the target customers. For example, a city restaurant may need to
provide a business-oriented lunch menu, but it is more suitable for a family evening
menu. Long business lunches are also decreasing, and companies prefer light,
healthy and less liquid lunches.

Health and safety legislation is also important. Maintaining food hygiene and
cleanliness can be expensive, or even higher if not followed. Trends such as
healthy eating, which focus on fresh and natural ingredients, are also increasing.
However, the cost may be affected by crop yields or weather conditions (i e,
physical environment).

The sustainable restaurant company is part of the B 2 company. The concept of

a sustainable restaurant company is based on attention to detail and attention to
quality. All raw materials come from local sustainable and organic producers. They
work closely with suppliers to ensure that US environmental guidelines, food
production uses sustainable, high-benchmark agricultural methods, high

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 standards of animal welfare and low-intensity, rather than high-intensity
agricultural technology.

Over time, the content between the menus is more similar than before.
Alejandra managed to save operating costs by introducing standardized elements,
while still maintaining the spirit of sustainability. However, it is inevitable that some
products emphasized locally have been reduced due to the shift to national
suppliers. This situation may cause sustainable restaurants to have moved from a
collection of co-owned gourmet restaurants to a chain restaurant. High-end
restaurants do not like to be called chain restaurants, which are characterized by
standardized and common brands. This also has a certain impact on the brand
image.

The restaurant must ensure that the price of the food is the same every time
the menu is served, in other words, the serving size is exactly the same. An
additional complication comes from seasonal products, as this may affect pricing.
A good menu design will balance low-cost/high-margin/low-volume dishes with
high-cost/low-margin/high-volume dishes. The key is to make the mixture of
dishes as good as the individual price. This will only be accompanied by
experience and a lot of trial and error.

(iv) Different positions when considering issues may damage the company’s
reputation and even fall into legal proceedings

When the company purchases forest land, part of the transaction includes a
commitment to maintain the lake for its original purpose. Local residents raised
objections to the complex planning of leisure centers and hotels and worried that local
traffic would increase. The recreational purpose of using the lake would take
precedence over the original purpose. If the area's drainage system cannot handle
excess water during heavy rains, local flooding will occur.

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 However, B2 Inc predicts and emphasizes that the plan will increase
employment and boost the local economy. Bethan pointed out that the concept of
sustainable development is the core of the company's vision and promised to work
with local communities to protect wildlife and landscapes in their original form. The
purpose is to allow visitors to enjoy the natural beauty of the area while engaging in
outdoor activities.

From this point of view, residents are more concerned with the convenience of
life and the safety of residents' lives and property. But B2 Inc is more considering its
own economic interests. If something that residents worry about occurs later, it will
have an impact on B2 Inc's reputation and even fall into legal proceedings.

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3. ANALYSIS

The restaurant chain of B2 Inc. reached its pinnacle and was considered as an
important market player within the specific category of restaurants. However, due to
the business decisions made within the uncertain and unprecedented time period, the
overall brand image of the restaurant suffered immensely. Also, it led towards lower
customer satisfaction, lower crowd in the restaurants, and dipping brand image.
However, as a strategic business unit, the Sustainable Restaurant was generating
profit for its parent company (Case Study).

B2, typically is a combination of related diversified business portfolio. The

owners never let go of any alluring and attractive opportunity to invest and they make
it sure that the new strategic business unit is creating profit and is also sustainable.
Currently, the bosses of the firm face a dilemma and that is either to revive the cash
cow i.e. Sustainable Restaurant chain and bring it back to its original pinnacle, or invest
in new opportunity in which the local community is creating barriers (Case Study).

Due to Buck and Bethan became busy, they only managed to visit each
restaurant about once a year and left the decision-making to Alejandra who was more
focused on cutting the costs to survive difficult economic times. This has caused the
quality of fine dining to drop and became a restaurant chain status instead. Thus, their
good image and reputation as a fine dining restaurant has been slightly tarnished due
to this critic. According to the financial report provided, the financial performance
became weaker as shown by the reducing operating profit in 2015.

In this situation, generally, business needs the help of a management

accountant, an experienced management accountant that could forecast the business
investment in both the cases and provide bosses with strong accounting based
knowledge foundation to decide on the future of the business. It is necessary to make
a decision for the future sustainable business (Shields, & Shelleman, 2016).
Sustainable Restaurant is already in the market, it requires reinvestment to bring it
make to its old form of fine dining, but sometimes it is difficult to revive. On the other
hand, investing in something new has its own pros and cons and therefore it is
essential to have strong foundation to decide rather than depending on what the heart
wants.

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4. RECOMMENDATIONS

Having experience for head hunting and retaining them for long, the bosses of
B2 Inc. are in dire need to acquire services of management accountant. Management
accountant shall focus on the accounting information and then inform the management
regarding the operational business issues and strengths. The management
accounting, since deals with the costs of the products and services, creates budget,
evaluates performance and determine the variances between actual and results from
budgets, therefore it provides critical foundation on the basis of accounting information
(Juras, 2014).

The most important aspect of management accounting is to forecast the future.

The management accounting shall provide bosses with the accounting information
regarding if they should reinvest in the Sustainable Restaurant chain or should invest
in potential opportunity. The tools that the management accountant utilize are cash
flows analysis, financial statement analysis, time series analysis, and causal models
(Ward, 2012). In the current situation, the solution for the dilemma faced by the bosses
of B2 Inc. is to hire an effective, strategic and knowledgeable management accountant
and present the situation to them.

Sustainability can have a significant impact on internal partners by helping to

recruit top-level capabilities, increasing employee commitment, and having
representatives to reduce staff turnover. Reducing staff turnover and expanding
employee input and creation can bring generous cost reserve funds and productivity
gains to large organizations. An attractive representative who is happy about where
he works is likely to become a higher-paid expert and stay in an organization longer.

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 (i) Using strategic management techniques to achieve objectives

The balanced scorecard allows managers to look at the business from four
important perspectives which includes financial measures that tell the results of
actions already taken. It complements the financial measures with operational
measures on customer satisfaction, internal processes, and the organization’s
innovation and improvement activities, operational measures that are the drivers of
future financial performance. For example, one of the measure is to Increase
customers satisfaction levels so that more of 80% of customers will recommend the
restaurant to their friends. This can be done by introducing customer loyalty scheme
such as providing discounts, free meals or bottle of wines during special theme nights.

Second example is to reduce number of complaints or negative comments

within the restaurant services. This objective can be achieved by actively promoting
positive public relations via recruiting a media specialist within the market department
in order to reduce number of complaints received compared to previous years.

Additionally, management accountant can suggest the company to use activity-

based costing method in the accounting to provide more accurate production costs
report. This can help businesses make more informed decisions about which products
to produce or help them find cheaper methods of production apart from assisting the
pricing determination for individual products.

In addition to having a clearer understanding of the manufacturing costs, the

process of gathering the data is also easy with activity-based costing. Most
management members can identify the costs of each activity once they have the
necessary data. This may also help with making production decisions that affect
pricing.

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 Management accountants can also use benchmarking techniques to aid the
performance of the sustainable restaurant. For example, management accountant can
assist in collection and provision of information on external factors, e.g., industry
statistics, interest rates, economic data. Consequently, evaluation of the monetary
impact of environmental influences on Sustainable Restaurants, e.g., changes to
minimum wage rates, introduction of new H & S legislation, interest rate rises can be
implemented by the management accountants. Linked to the above, assisting in
assessing Sustainable Restaurants ability to deal with changes in the environment to
ascertain whether changes are opportunities or threats.

(ii) Focusing on teamwork, training and technologies to decrease

turnover and improve morale

Managers of successful restaurant chains find three key approaches to

improving morale and retaining employees. All employees should be treated as
“equals,” with appreciation and respect.

Education is another key of retaining personnel and increasing morale. Training

seminars and cross-training programs where employees learn each others’ jobs can
build camaraderie among workers. Education is another key of retaining personnel
and increasing morale. Training seminars and cross-training programs where
employees learn each others’ jobs can build camaraderie among workers. Employee
training is essential to implement new technologies. Once implemented,mundane
employee tasks are minimized. Employees and the restaurant can then focus on other
areas of employee development.

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 (iii) Purchasing an Energy Management System

Several firms specialize in energy management systems. They estimate

savings for restaurants to be 10%—15% of monthly utility bills. Restaurants with
monthly utility bills of $2,000 or more will probably find installing a system cost
effective. The average system costs about $7,000 to install.

Energy management systems (EMS) continually monitor and regulate

temperatures of refrigerators, freezers, preparation equipment, grills, and ovens. An
alarm and a flashing message on a monitor warn management of problems. Also,
remote monitoring is available on some systems. For example, Taco Bell uses a
remote system. If store management does not respond to alarms within two hours, the
remote monitoring station notifies Taco Bell’s central headquarters. This ensures that
energy problems are not ignored, but dealt with on a timely basis.

In addition to utility savings, the monitoring system promotes food safety. Since
temperatures are regulated, food is stored and cooked at the proper temperature. This
helps to reduce premature spoilage and cooking foods at the incorrect temperature.

Machinery can also be programmed to work during the most productive times
of day or when utility rates are lower. For example, ice makers produce ice faster in
cooler temperatures than in hot. The EMS can schedule ice to be made at 3 or 4 AM
when it’s coolest out and when utility rates are the lowest. That might cut ice production
time from 40 to 20 minutes, again saving utility costs.

Finally, EMSs keep records of run times on compressors. This makes it easy
for restaurateurs to schedule maintenance times. The system will also note if a
compressor is acting unusual, and warn management that maintenance is needed
immediately .

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 (iv) Management Controls

Management must implement and monitor the food cost controls. Following are
several types of reconciliations that can to be completed to control food costs:

 Production Report.

Management should perform a production budget on a daily basis. Security

Audit. The security audit can also serve as a psychological control. Employees
need to know that management is watching the inventory. In addition, if
variances are discovered after the audit, management can take action
immediately.

 Cost Analysis.

On a weekly basis, cost percentages (food costs/sales revenues) can be

calculated for each menu category: Appetizers, Salads, Sides, Entrees,
Desserts, and Beverages. If a particular food cost percentage changes
significantly, management can investigate the reason. Perhaps there is waste
or pilferage, or perhaps the price of the ingredients increased. If the production
price increases are permanent, then menu prices should be adjusted, or
cheaper ingredients might be used to bring cost back into line.

 Waste Audit.

Waste, leftovers, scrap, and outdated products should not be disposed of

without management’s knowledge. Records of waste should be maintained so
managers may better forecast purchases. Also, cooking mistakes should not
be thrown away. Some of them might be able to be used later as employee
meals. Clear, see-through garbage can liners are recommended for waste
disposal because stolen items may not be concealed for retrieval at a later time.
Also, management can see flatware, dishes, or trays that have been thrown
out.

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 5. CONCLUSIONS

In summary, the development of B2 Inc from a single organic farm business to a

diversified business is inseparable from the leader's unique market vision and the
efforts of the company's employees. But in the process of company development, a
series of problems inevitably appeared. For example, the management only pays
attention to the economic interests of the company when considering problems and so
on. In response to these problems, companies can find new growth methods through
forward-looking management accounting methods. By applying management
accounting capabilities throughout the organization, you can improve business
performance and increase revenue and profitability. Examples include designing
systems, strengthening business relationships within the organization and the entire
supply chain, and implementing strategic performance metrics.

It is concluded that management accounting can help in evaluating the business

decisions by assessing the performance of the business. Management accounting can
also facilitate in forecasting the future performance of the business through providing
factual and number based forecast to the bosses of the company.

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REFERENCES

Shields, J., & Shelleman, J. M. (2016). Management accounting systems in

microSMEs. Journal of Applied Management and Entrepreneurship, 21(1), 19.
Juras, A. (2014). Strategic management accounting-what is the current state of the
concept?. Economy Transdisciplinarity Cognition, 17(2), 76.
Ward, K. (2012). Strategic management accounting. Routledge.
Drury, C. (2018). Cost and management accounting. Cengage Learning.

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