ACC3MAC - Performance Management and Control Case Study: Amcor Limited

This case study provides a comprehensive analysis of Amcor Limited's performance management and control systems. It delves into budgeting processes, highlighting the interplay between various operational sites and the central office, emphasizing the importance of aligning company objectives with site-specific goals. The study explores the effectiveness of different budgeting approaches, contrasting top-down and participative methods, and evaluates Amcor's current bottom-up approach. Furthermore, it examines standard costing systems, material price variances, and the role of activity-based budgeting in controlling overhead costs. The analysis extends to transfer pricing strategies within Amcor's decentralized organizational structure, considering factors like inflation, exchange rates, and tax regimes. Finally, the case touches upon financial performance measures, incentive schemes, and the application of a balanced scorecard approach within Amcor's Flexibles division, offering insights into optimizing financial performance and aligning employee incentives with organizational goals. This document is available on Desklib, a platform offering a wide array of study tools and solved assignments for students.

Running head: PERFORMANCE MANAGEMENT AND CONTROL
PERFORMANCE MANAGEMENT AND CONTROL
Name of the Student
Name of the University
Author Note

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1. Budgeting
1. A budget refers to the estimated costs, income and resources of an organization, over
a specified time-period, which measures the current financial position of the
organization, its financial objectives and accordingly formulates appropriate methods
to achieve the objectives. The budget of Amcor limited are inter-dependent on the
several sites of operation, there are 50 packaging and recycling sites across Australia.
Each of these sites present their own budget which is consolidated in the main office
after the manager of each site has submitted their budget. The manager of the site or
the project manager is the one who produces the budget. The components of the
budget are based on the type of operation that is undertaken in the site, the packaging
site will have different particulars than the recycling site. The major components of
budgeting process are the income and the expense (Roncalli, 2013). Amcor Limited’s
accounting budget can be made relevant and responsible for the chosen strategy with
a strong network of the managerial employees.
2. It is essential to allying the objective do the company with the goals of the sites, the
Amcor and its strategic plan are inter-dependent on each other. Having in-depth
knowledge about the estimated costs—cost per order, cost per customer, cost to
maintain the loyalty of a customer—helps in formulating an appropriate strategy plan.
Having knowledge regarding the expenditures of Amcor Limited on behalf of
customer retention would increase the value of customer loyalty and quality service
for the employees. Discrepancy in the understanding of the specific strategic plan
amongst the managers of over 50 sites results in inappropriate or/and irrelevant
budget formation.

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3. An effective budgeting process is participative budgeting, where all the members
affected by the budget, equally participate in the formation of the budget (Baiocchi &
Ganuza, 2014). It follows a bottom-up approach, where the emphasis is on the
involvement of the employees in drafting the budget—as opposed to the top-down
approach, where the top-level managers impose their rigid budget on the lower level
employees. Preliminary budgets from the various process employees move vertically
upwards, where the top-level managers review and modify them.
The advantages of participative budgeting are as follows:
 It results in enhanced communication and co-ordination amongst the
various process levels of an organization.
 It improves accuracy, as the local managers are more aware about the
requirements of local operations.
 Inclusion of ground-level employees in budget-formation accounts for
increased sense of ownership, sense of empowerment and increased
motivation towards their work.
In Amcor limited this kind of budgeting can be an alternative to the process that is being
followed, the organisation follows top-down budgeting process which is one of the main
reason why the company faces discrepancy with the estimates of the HQ.
4. Amcor Limited uses a bottom-up approach for its more than 50 sites spread all over
Australia. Each site constructs their own budget, supervised by respective managers;
and a compilation of all the budgets, with necessary amendments and modifications
together make the master budget or the final budget of the whole organization. Amcor
reveals certain demerits of using this approach: It is a lengthy and time-consuming
procedure as the preliminary budgets from over 50 sites are accumulated and

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modified with respect to the Company’s strategies and finally creates the master
budget.
The advantages of using this approach are:
 Improve transparency in governance of processes.
 Empowers employees and includes them in direct decision-making
processes.
 Reduces corruption and addresses the requirements correctly.
Rolling forecast is used as a tool to keep a track on the key variables that reveal the
future predictions of a Company (Miller, 2018). Amcor’s chief motive is to reduce the time
taken during the budgeting process and using the rolling forecast approach would increase
flexibility in times of changing organizational behaviour.

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2. Standard Costing I
1. A standard costing system uses various approaches to manage the budget and
expenses of an organization by estimating the cost of raw materials and the cost of
required labour. The chief purpose of a standard costing system is to control the costs
of production and evaluate the efficiency of cost management. The manufacturing
division of the company sets the standards for direct material price and usage, direct
labour rate and efficiency and overheads. In Amcor Limited the packaging specialist,
incurs huge expenses on overheads, which can be controlled with Activity base
Budgeting or activity based Costing.
2. The difference between the actual cost and the estimated cost of production multiplied
with the number of units of production gives the material price variance. Various
causes that influence the price variance are—change in the quality of raw materials,
the supplier’s bargaining power, change is product price and/or discrepancy between
the estimated amount of materials required and the materials actually bought (Needles
& Crosson, 2013). The management of Amcor should consider the following points:
 Increased labour costs due to over-time.
 Unskilled resources enhance expenses in terms of money, time and
production.
 Faulty estimation of costs and/or unforseen complexities in production process
influences price variance unfavourably.
3. In Amcor ltd, participative budgeting or the practice of bottom-up budgeting process
that essentially involves all the members that would be affected by the budget, in the
decision-making process (Heinle, Ross & Saouma, 2013).

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Advantages:
 Enhancing employee motivation and reducing exclusion of process employees
from decision-making process.
 It addresses the requirements of various organizational levels accurately.
Disadvantages:
 This approach is essentially time-consuming, especially in case of Amcor,
which has over 50 sites all over Australia.
On the other hand in the company, substituting an estimated cost of production with
the actual cost of production gives us the standard costing of a company (Fuss & McFadden,
2014). Identifying the correct standard for a Company is the first step towards setting cost
standards. Cost standards can be Ideal, Material, Labour or Overheads. Standard costing also
has a few demerits:
 It increases expenditure.
 Periodical revision of standards is necessary to keep it relevant in the changing
business scenario.
But both the process is strategically incorrect for the company as there is issues in both
budgeting as well as costing, this mostly arises from the fact that the company has many sites
of operation and no integrated planning process.
4. Australia Packaging is another such packaging Company that plans to launch new products
and services that reduce the labour of production and also conserve time. In order to develop
standard costs for the service, the Company has to go through the following steps:
 Identify the specific direct materials that are used for the production of
services (Beuren, Ferreira & Miguel, 2013).

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 Consult with materials expert, engineers and cost accountants.
 Specify the exact quality and quantity of materials used.
3. Standard Costing II
1. As stated by Sue: incorporating an Activity Based budgeting process the company can
evaluate the standard costs with actual performance and extract variances for cost
control. Associating the costs of production with the various activities involved would
construct an Activity Based Budget (Dekker et al., 2013). It helps in identifying the
ever-expenditure or the under-expenditure on activities that are necessary for
production. For example, identifying the over expenditure on a particular activity
would result in controlling the expenditure and reducing the cost of production.
2. Amcor Limited enjoys an automated manufacturing environment, replacing human
labourers with technological devices. The management accountants of Amcor must
keep in mind the costs of overheads in the process of production, while setting
standards to control variable costs. The cost of overheads production would include
the maintenance of technological devices and controls workload of activity based
costing by replacing human labours with artificial technologies.
3. The four major kinds of cost variances are labour variances, material variances,
variable overhead variances and sales variances. The four kinds of overhead variances
used by Amcore are: Variance based on budget, Variance based on efficiency, fixed
overhead variance and volume variance.

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 Labour: Amcor should apply labour variance for cost management as their
increasing technological advancements are reducing the need for human
labour.
 Budget: Amcor faces strict issues due to a huge budget of running an
organization in more than 50 sites in Australia.
 Efficiency: In light of recent changes in organizational structure, variance in
efficiency is important to find out the progress.
 Fixed Overhead: The difference between budgeted fixed overheads and the
actual fixed overheads helps in identifying fixed overheads.
4. The advantages of implementing standard costing system in Amcor Limited are as
follows:
 Enhances Company’s governance over costs of production.
 It helps in calculating an appropriate budget by setting up cost standards and
controlling production costs.
 It works as an innovative instrument to measure cost-effectiveness of a
company at different times.
4. Financial Performance Reports and Transfer Pricing
1. As Amcor is a decentralised organisation, it means that the company primarily
transfers and assigns decision-making responsibilities to the lower levels of
organizational hierarchy. In order to decentralise Amcor’s rigid plastic-packaging
division, various responsibility centres need to be set up, dedicated to specific scope

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areas, with a manager assigned for each centre. The different centres that could be set
up are:
 Cost Centre: Responsible for the cost incurred in the segment.
 Revenue Centre: Responsible for producing sales revenue
 Profit Centre: Responsible for both cost and revenue, hence profits.
 Investment Centre: Responsible for both profits and investments.
2. There are three types of transfer pricing: Market Prices, Cost-Based Prices,
Negotiated Prices and Dual Prices. The rigid plastic packaging division has its offices
in Latin America and the US; therefore, the best method of transfer pricing would be
Cost-Based Prices need to reduce the price charged for transferring goods and
services within the firm.
3. Various factors that influence the transfer prices are as follows:
 Inflation: Inflation in both the countries could influence the transfer prices.
 Exchange rate fluctuations: Fluctuations in exchange rate of both countries
influence transfer prices.
 Tax Regime: Tax laws relevant to the specific countries influence transfer
prices.
 Profit allocation
 Calculation and cost accounting
 External regulations
4. The formula that is used for labour cost variance is :
(Actual rate - Standard rate) x Actual hours worked = Labour rate variance (Chetty et
al., 2013).

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This variance can be favourable or unfavourable, in this case tom is being asked to
justify for having an unfavourable varience, this means that the cost of labour is 55 percent
more than what was anticipated.
There are number of factors including poor estimates, unforseen complexities in procedure,
poor governance, fluctuation in price can result in undesirable labour cost variance. The
possible reasons for Amcor for having unfavourable cost variances are:
 Fluctuation in price of labour
 Unauthentic estimate of labour cost by manager
 Corruption in the managerial system
 Unrealistic estimation of productivity
Setting the estimated direct labour rate too high often results in huge price variance, because
of unrealistic expectations. Various factors influence the direct labour rate indirectly that
reduces productivity but increases revenue earned. He should focus on the high quality of the
products that are delivered as an outcome of the process. Not only the quality there are also
innovations and creative labour that is required in thus it can be explained that the rate of
labour in this division is higher.
5. Financial Performance Measures and Incentive Schemes
1. To implement the financial performance measures for the Flexibles division, Sue is
considering undertaking the balanced approach. In order to apply a balanced approach
several factors regarding the position, objectives and strategies of the company have
to be considered. Implementing qualitative performance measures have various
benefits like; it controls and manages the short term objectives, improved governance
over processes, maximisation of resources and more (Albertini, 2013). Here the

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objective of the company is to allocate cash to a combination of dividends, look for
organic growth opportunities and to manage the capital, the advantage of the balance
approach will ensure that there is no biased leverage to any particular asset or liability
it will keep the operations run in a smooth way and in the long run can achieve the 10
percent increment in the shareholders value as well. A balanced approach upholds the
interests of the shareholders focuses on the financial objective as well as develops a
financial perspective. As allocation of the incentive among the managers is the issue
that is prevalent in the organisation the company this will also give the management
idea regarding the process of incentive allocation (Roncalli, 2013).
The disadvantage of the approach is that in this process there is no additional financial
support in case of any kind of emergency, the company will have to give up on the
assets in order to deal with a problem situation that is impacts negatively on the
financial situations of the department as well (Albertini, 2013).
2. Incentive plans for individuals play a huge role in motivating as well as monitoring
the performance of a person (Christensen, Lee, Walker & Zeng, 2015). It enhances
employee motivation, reduces employee turnover, improves work efficiency on the
other hand team based incentives are driven by the achievement of a team rather than
an individual, achieving individual commitment are easier than to achieve team
targets, but this process improves the efficiency of production as well as promotes
teamwork and collaborative efforts. Therefore it can be said that team incentives have
a better chance of impacting the organisation positively than individual incentive
(Christensen, Lee, Walker & Zeng, 2015).
3. The competitive advantage of the company is the strong value chain that the company
has created over a period of time. ROI performance measurement is based on the
efficiency of the performance depending on the investment that the company has done

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on a particular recourse over a period of time. Over-emphasizing on Return on
Investment (ROI) performance measure affects the company’s competence in the
international market (McNulty, De Cieri & Hutchings, 2013). It might distract
respective managers from concentrating on technical grounds to over-attention
towards ratios and trends. It will also hamper the relation with the suppliers in the
value chain which might lead to disruption (McNulty, De Cieri & Hutchings, 2013).
4. The external stakeholders of the company are: the clients, supplier’s government.
The KPI that the company will showcase the clients are:
 The quality of the products
 The price of the products
For the suppliers:
 The opportunity in the industry and the growth of the business in the last
financial year
 The Future plans of the business
For the government
 Contribution of the organisation towards the society and the environment
 Contribution of the revenue of the company towards the economy of the company