. Marco Polo Travels AS is a Norwegian travel and tourism company that offers holiday travels to more than 30 destinations in Southern Europe, Africa and Asia. Over a period of three years, the company has reported a small financial loss, but thanks to a sufficient equity and good cash reserves, the lack of profitability has not so far increased the operational risk significantly. The company has developed a strategy plan with three strategic themes for the forthcoming strategy period:
. - Strong and profitable growth
. - Quality is in the details
. - The best company in the tourism business to work for
. ?In recent years, Marco Polo AS has employed several young management trainees. One of them is the Alexander F. who has been with the company now for half a year. Although not a formal member of the management group, Alexander sits in as an observer at the weekly management meetings on Monday mornings. ?At one of the recent management meetings, Alexander made more notes in his book than usual. The budgets for 2018 were discussed, and several members of the team expressed their views on ?this, on the goal setting process as well as on management control systems in general. ?Four statements caught Alexander's attention in particular:
1. Sales manager: "If we can sell tickets for 10 million per month, the company will start making ?money again and secure the ability to survive in the future. Therefore, we should focus on sales and on measuring success in this area. The more successful we are with our sales efforts the more profitable we will be!"
2. CEO: "When the Board of Directors accepts the budget for 2018 it is of utmost importance that we are loyal to this and don't spend more money than the budget suggests, not only in the beginning of the calendar year, but also in the last two quarters. We should do what we can to avoid overspending!"
. CFO: "I am not worried about the variable costs, because we can influence these, but the fixed costs are more challenging. We must therefore make a detailed control model where we follow up variances on fixed costs, area by area, month by month!"
. CFO: "Introducing Activity Based Costing as a tool to be able to understand better the link between some of things we do and what it costs us has proven to be very successful. I will therefore increase the scope of activity analyses significantly in 2018. In fact, I have already had a meeting with our accounting software provider and they have told us that it is possible to code all revenues and costs with relevant activity codes. Therefore, I am planning to use ABC not only as a way to understanding some of the costs in the administration and sales departments, but to understand all of the costs of our company."
On the way back from the meeting, Alexander was thinking about what he heard and he felt that something seemed to be wrong with the views that his colleagues expressed.?- "This is not what I learned in my management accounting classes", he said to himself.
He decided to talk to his manager/mentor about the management opinions conveyed in the meeting and what he felt could be a wrong approach to the implementation of the ambitious strategies for the next period. As a part of the position as a trainee, Alexander and his mentor have weekly meetings where they discuss his experiences and learning along the way. He prepares well for these meetings and presents notes and views in areas that require more and better attention, according to his own views. This time he had the four above statements to talk about.
Alexander had concluded that all of the four statements either based on irrelevant assumptions, or were results of the lack of understanding important concepts and relationships within the area of management control. What do you think the he wanted to talk to his mentor about?