In partial fulfillment

Of the requirements for the

Degree of Bachelor in Accountancy

Case Study:

Tru-Fit Parts, Inc.

Submitted by:

Dela Rosa, Roselyn

Gubaton, Michelle
Paulino, Raniel Cornelia
Tan, Jessica

Synthesis
ACT196

April 25, 2017

I. Introduction
 "A manufacturing business is any business that uses components,

parts or raw materials to make a finished good. These finished goods can be

sold directly to consumers or to other manufacturing businesses that use

them for making a different product."(2007, Hill)

"Automotive industry is those companies and activities involved in the

manufacture of motor vehicles, including most components, such as engines

and bodies, but excluding tires, batteries, and fuel."(Rae and Binder)
II. Background
Tru-Fit Parts, Inc., is a manufacturing company of various parts of

automobiles, trucks and farm equipment. It can be classified into three parts

such as ignition parts, transmission parts, and engine parts. Their markets

are the original-equipment manufacturers (OEM Market) and the aftermarket

(AM) who is a first link wholesaler in the distribution channel of replacement

parts.
In companys organizational chart, each major part has its own

manufacturing division Ignition Parts Division, Transmission Parts Division,

Engine Parts Division, and AM Marketing Division. Under these divisions, they

are in charge in selling these products aside from manufacturing them. Also,

they are considered as an investment center.

The top management set its goal to increase to 50% the AM portion of

the outside sales as of 45% coming from almost one-third of its outside

manufacturing sales division.

According to the companys executive officers, the critical success

factors in the OEM Market namely (1) the ability to design innovative and

dependable parts that met the customers performance and weight

specifications; (2) meeting OEM delivery requirements so that the EOM

company could minimize its inventories; (3) controlling costs, since the

market was very price-competitive.

III. Discussion (Definition of Terms)
 Original Equipment Manufacturers (OEM) a company whose goods are

used as components in the products of another company, which then sells

the finished items to users.

Aftermarket (AM) secondary market of the automotive industry,

concerned with the manufacturing, remanufacturing, distribution, and

installation of all vehicle parts, equipment and accessories after the sale by

the original equipment manufacturers.

Investment Centers a way to classify and evaluate a department based

on its revenues, costs, and asset investments; a business unit that can utilize

capital to directly contribute to a companys profitability

Intercompany sales internal sales transactions between two or more

affiliates or business units of the same parent company

Return on Investment (ROI) this is a performance used to evaluate the

efficiency of an investment
Budgeted Profit
Target ROI
Actual beginning of year net assets
Actual Profit
Actual ROI
Actual beginning of year assets
Imputed income tax the value of a service or benefit provided by

employers to employees, which must be treated as income

Net assets = Total assets Current Liabilities
Bottom line companys income after all expenses have been deducted

from revenues; net earnings

Incremental profit profit gain or loss associated with a given managerial

decision
Corporate earnings per share portion of a companys profit allocated to

each outstanding share of common stock; serves as an indicator of a

 companys profitability

Net income Dividends on Preferred Stock

Earnings Per Share
Average Outstanding Shares
IV. Problems Encountered
The top management of Tru-Fit Parts, Inc. mentioned three areas of

concern in their business. One is about the few disputes over transfer prices

from the manufacturing divisions to the aftermarket (AM) Marketing.

Normally, these issues were resolved by the two divisions involved, but

sometimes the corporate controller was asked to straighten out the conflict.

Second is that the management felt that the AM Marketing is treated as a

captive customer by the manufacturing division. They considered the

overall image of the company fearing that it would be greatly affected if the

AM Marketing will sell a competitors product. And lastly, most of the year,

the management thinks that both AM Marketing and the three manufacturing

divisions carried excessive inventories. According to the controller, there is

only decreased in the inventory because production volume is low due to

employee holiday vacations.

V. Conclusion
The company basically focused much on what generates the most

revenue and has forgotten to give much attention on enhancing the weak

part of the management. OEM Markets should also be given importance

because enhancing this part will increase its revenues and could as well be

an advertising advantage for them since attaching their parts to equipment

manufacturers will prove its performance to customers and suppliers.

Inventory management is one of the things to be improved on which could be

 addressed easily if proper placement of inventories according to what market

it would be sold is to be present in the factory.

VI. Recommendation
To avoid disputes, transfer prices must then be first established. In the

case of OEM products, it rarely encounters disputes since transfer prices are

already established for them. It there are no available division on any of the

three, prices may be set by comparing with other similar companies. But,

aside from this option, they may opt to compute the manufacturing costs

with its corresponding mark up on price.

In the divisions mentioned, AM Marketing has been providing the most

outstanding performance in the organization. What they could do to address

the issue mentioned is to establish a competitive transfer price that would

add up to more benefits making it more attractive. But, aside from this

advantage, another issue to be settles was the excess inventories most of the

year. This may be the case because they might have focused much on

forecasting that they have yet to use the idea of checking previous

transactions and events to know how much inventories are needed for the

year.
The company should be open to enhancing the AM Markets, not only

the OEM Markets. This will help revenue rise because since AM Markets

already generate more revenue for the company, enhancing OEM Markets will

increase revenues much more. Also, incentives would be good as well

because it will encourage them to work better. Though it would seem unfair

to give those of higher position a better incentive, it will be an inspiration for

those at the lower position to give out their best performance.