Assessment Brief – Newcastle Business School
Page 1 of extremely secretive regarding the development of new and existing games. He feels this is required so that competitors do not find out the new ideas as this may reduce HG-Ai’s competitive advantage.
• Net profit has fallen from 22% to 10%.
• There has been a significant increase in revenue refunds, which are debited directly back to sales, to customers who have complained of faulty products. This has been down to flaws in the programming of the games. Ms Hadesa Chin is keen to address this but is wary of spending too much money on quality control as this may reduce profits even further.
• Each department in the company has a director and part of their responsibilities emphasise cost control in their departments. However, there is no formal budgeting practice in the business. Some managers provide Ms Chan with detailed budgets, and others tender just some headline figures. Most managers simply take last year’s figures and justify a small increase due to inflation and exchange rate factors.
• Sales of the product occur all over the world and are marketed towards adult commuters who play the games on trains and buses on their way to and from their daily jobs.
• The company has very low cost of sales (variable costs) as once the games are developed, they are sold as downloads, directly on to customers’ mobile phones. So unlike console games that can be sold on disks, there is no physical product. However, the overheads of the business are very high due to the development costs involved. Overheads can vary in type. There are many game developments related overheads, but also game testing, marketing, and customer acceptance activities, though these are considerably lower.
Assessment Requirements
a) Critically compare three costing methods that may aid HG-Ai to both reduce and understand their costs. (27 marks)
b) Critically compare two most common budgeting methods that may aid HG-Ai to reduce overheads. You must include Beyond Budgeting as one of your methods. (28 marks)
c) Critically evaluate how three strategic cost saving techniques may be able to help HG-Ai to save costs. You must include the PAFF (Prevention, Appraisal, Internal Failure, External Failure) technique of Cost of Quality as one of the techniques. (25 marks)
