Analysis Of Life Insurance Industry In India Economics Essay

Analysis Of Life Insurance Industry In India Economics Essay Since inception the Indian life insurance industry has its own origin and history. It has passed through many hurdles and hindrances in order to attain the present status. However, the income earning capacity of an individual citizen of a nation and the eagerness and awareness of the general public are the two key determinants of the growth of any insurance industry. In the Indian context, the insurance habits among the general public during the independence decade was rare and in the following decades, it has slowly increased. There was a remarkable improvement in the Indian insurance industry soon after the economic reform era (1991). After 1991 the Indian life insurance industry has geared up in all respects, as well as it is being forced to face a lot of healthy competition from many national as well as international private insurance players. In this paper we have analyzed the performance of LIC over a time period of 1980 to 2009, attempt has been made to analyse the overall performance of Life Insurance Industry of India between pre- and post economic reform era. To measure the current status, volume of competitions and challenges faced by the Life Insurance Corporation of India and to measure the effectiveness of investment strategy of LIC over the period 1980 to 2009. Data were analysed by using Regression, Trend Analysis and Anova. The study reveals that there is a tremendous growth in the performance of Indian Life Insurance industry and LIC due to the policy of LPG. Insurance industry also improved a lot due to the emergence of Private sector and opening up for foreign players. Further there is also a huge change in the investment pattern of LIC. There is a increasing trend toward the investment in Stock market by LIC from 60% to 93% from 1980 to 2009 due to the effective regulation of SEBI and increasing transparen cy of stock market. I. Introduction Life insurance is a contract for the payment of a sum of money to a person assured on happening of the event ensured against. Usually the contracts provide for the payment of the amount on a date of maturity or at a specified date at periodic intervals or at unfortunate death, if it occurs earlier. Life insurance is universally acknowledged to be an institution, which eliminates risk, substituting certainty for uncertainty and comes to the timely aid of the family in the unfortunate event of death of breadwinner. Life insurance is civilisations partial solution to the problems that caused by death. In short, life insurance is concerned with two hazards that stand across the life-path of every person: 1.That of dying prematurely is leaving a dependent family to fend for itself. 2. That of living till old age without visible means of support. The nationalization of insurance business in the country resulted in the establishment of Life Insurance Corporation of India (LIC) in 1956 as a wholly- owned corporation of the government of India. Indias life insurance market has grown rapidly over the past six years, with new business premiums growing at over 40% per year. The premium income of Indias life insurance market is set to double by 2012 on better penetration and higher incomes. Insurance penetration in India is currently about 4% of its GDP, much lower than the developed market level of 6-9%. In several segments of the population, the penetration is lower than potential. For example, in urban areas, the penetration of life insurance in the mass market is about 65%, and its considerably less in the low-income unbanked segment. In rural areas, life insurance penetration in the banked segment is estimated to be about 40%, while it is marginal at best in the unbanked segment. The total premium could go up to $80-100 billion by 2012 from the present $40 billion as higher per capita income increases per capita insurance intensity. The average household premium will rise to Rs 3,000-4,100 from the current Rs 1,300 as will penetration by the existing and new players. Indias ratio of life insurance premium to its GDP is around 4 per cent against 6-9 per cent in the developed world. It could rise to 5.1-6.2 by 2012 in tandem with the countrys demographic profile. India has 17 life insurers and the state owned Life Insurance Corp. of India dominates the industry with over 70 percent market share, though private players have been growing aggressively. Considering the worlds largest population and an annual growth rate of nearly 7 per cent, India offers great opportunities for insurers. US based online insurance company ebix.com plans to enter the Indian market following deregulation of its insurance sector. In a diverse country such as India it is imperative that a universal insurance infrastructure be created to maximize efficiency in the insurance industry. Online insurer ebix.com can offers the Indian market a business-to-consumer internet portal where consumers have more choice while purchasing insurance and an internet-based agency management system that will help agents work more efficiently with multiple carriers. Foreign holding in Indian insurance companies is limited to 26 per cent. The market is moving beyond single-premium policies and unit linked insurance products which are easier to sell. The agency model is the dominant sales channel accounting for more than 85 per cent of fresh premiums but overall inactivity and attrition is much higher at 50-55 per cent than the global average of 25 per cent. GIVE REFERENCE II. Review of Literature In the present section an attempt has been made to examine the review of literature related to the study. Rao, R.T.S. (2000) in this article had explained the phenomenal growth experienced by life insurance industries recently, in line with the countrys improving economic fundamentals. By comparing the growth, penetration, density and other insurance variables, he had shown that India is still an underdeveloped insurance market, it has a huge catch-up potential. According to him even though there is strong potential for expansion of insurance into rural areas, growth has so far remained slow. Considering that the bulk of the Indian population still resides in rural areas, it is imperative that the insurance industrys development should not miss this vast sector of the population. Goyal, K. (2004), in this article has reviewed that private insurance companies had reason to celebrate with the lifting of the sectoral cap in the insurance sector to 49 per cent in the Union Budget 2004-05, as against 26 per cent earlier. However, to offset the excitement, there was also an imposition of service tax of 10 per cent on the risk premium for life insurance, which has the industry with mixed feelings. The FDI hike has been a much-awaited plea of these companies, who believed that they could plough in more money into the business if their foreign partners were permitted an increased holding. Jain, A.K. (2004), revealed that Waves of liberalization have done wonders to proper the insurance occupation to the status of a career with a bright future. The average mindset, particularly of younger generation in India was very amenable to the changes in insurance as an avenue where exhilarating opportunities are opened up in changed environment. Krishnamurthy, S. (2005) in this article had reviewed that Insurance companies have a pivotal role in offering insurance products which meet the requirements of the people and, at the same time, are affordable. Some of the challenges faced by the insurance sector pertain to the demand conditions, competition in the sector, product innovations, delivery and distribution systems, use of technology, and regulation. With the liberalization and entry of private companies in insurance, the Indian insurance sector has started showing signs of significant change. Ray, Subhashish and Pathak, Ajay. (2006) opined that ever since the privatization of the insurance sector in India in 2000, the industries has been witnessing the birth of numerous private players, mostly joint ventures between foreign insurance giants and Indian diversified conglomerates and each one is trying to make an inroad into the huge untapped market. Sinha, Ram Pratap. (2007) opined that the deregulation of general insurance industry in India is having far-reaching consequences in terms of market size, structure and operational practices. As compared to the international standards the penetration level of general insurance companies in India is quite low and, therefore, has tremendous potential for growth. His analysis revealed that the public sector insurers dominate the private sector insurers in terms of mean technical efficiency in constant returns to scale, while the private sector insurers have a slightly higher mean technical efficiency than the public sector insurers in variable returns to scale. Goswami, P. (2007) in this article had reviewed that the insurance industry in India was opened up to private sector participation in the year 2000. Prior to this, Life Insurance Corporation (LIC) of India was the sole player in the life insurance industry in India. In six years since the entry of private players in the insurance market, LIC has lost 29% market share to the private players, although both, market size and the insurance premium being collected, are on the rise. In 2005, life insurance accounted for 79% of the total insurance market in India. It was found that the responsiveness dimension of service quality provides maximum customer satisfaction in the life insurance industry in India. Sabera. (2007) indicated that in March 2000, when the Government of India liberalized the insurance sector, lifted the entry restrictions for private insurance players, allowing the foreign players to enter into the market and start their operations in India. The entry of private players helps in spreading and keeping the operation in the Indian insurance sector which in turn results in restructuring and revitalizing of public sector companies. III. Research Methodology The research article is based upon descriptive as well as exploratory research. Secondary sources of data collection have been adopted for the study. The relevant and required data are collected from the text books, national and international articles, RBI Bulletin (various issues) as well as annual reports of LIC. The Statistical tools used in this research article are Correlation, Regression, ANOVA, the method of least squares and linear trend. The method of least square has been used for analysing the overall performance of Life Insurance Industry of India between pre- and post economic reform era and to measure the current status, volume of competitions and challenges faced by the Life Insurance Corporation of India. For processing the data and estimating the results, Excel, SPSS-16 packages have been used. Objectives: The following are the objectives of the present study To analyze the overall performance of Life Insurance Industry of India between pre- and post economic reform era To measure the current status, volume of competitions and challenges faced by the Life Insurance Corporation of India To measure the change in the effectiveness of the investment strategy of LIC over the period 1980 to 2009. Hypothesis: The study is based on the hypothesis that There is no significance difference in the performance of Life Insurance Industry between pre- and post economic reform era There is no significance Change in the pattern of the investment strategy of LIC over the period 1980 to 2009. Status and Position of Indian Life Insurance Industry in the pre LPG era In India, life insurance in its modern form came from England in the year 1818. The first life insurance was Oriental life insurance Company started by Europeans in Calcutta. All the insurance industries established during that period of time were brought up with the purpose of looking after the needs of European community and Indian natives were not being insured by these companies. Later on with the efforts of eminent people like Babu Muttylal Seal, the foreign life insurance companies started insuring Indian lives. But still Indian lives were being treated as sub-standard lives and heavy extra premiums were being charged on them. However in the year 1870, Bombay Mutual Life Assurance Society heralded the birth of first Indian life insurance company and covered Indian lives at normal rates. Starting as Indian enterprise with highly patriotic motives, insurance companies came into existence to carry the message of insurance and social security through insurance to various sectors of the society. Bharat Insurance Company (1896) was another one of such companies inspired by nationalism. The Swadeshi movement during 1905-1907 gave rise to more insurance companies. The United India in Madras, National Indian and National Insurance in Calcutta and the Co-operative Assurance at Lahore were established in 1906. In 1907, the Hindustan Co-operative Insurance Company took its birth in one of the rooms of the Jorasanko, house of the great poet Rabindra Nath Tagore, in Calcutta. The Indian Mercantile, General Assurance and Swadeshi Life (later Bombay Life) were some of the companies that established during the same period. Prior to 1912, India had no legislation to regulate insurance business. However in the year 1912, the Life Insurance Companies Act, and the Provident Fund Act were passed. The Life Insurance Companies Act, 1912 made it necessary that the premium rate tables and periodical valuations of companies should be certified by an actuary, but in actuall the Act discriminated between foreign and Indian companies on many accounts, putting the Indian companies at a disadvantage. The first two decades of the twentieth century saw lot of growth in insurance industries. From 44 companies with total business-in-force of Rs.22.44 crore, it rose to 176 companies with total business-in-force of Rs.298 crore in 1938. During the mushrooming of insurance companies many financially unsound concerns were also floated which failed miserably. The Insurance Act 1938 was the first legislation governing not only life insurance but also non-life insurance to provide strict state control over insurance business. The demand for nationalization of life insurance industry was made repeatedly in the past but it gathered momentum in 1944 when a bill to amend the Life Insurance Act 1938 was introduced in the Legislative Assembly. However, it was much later on the 19th of January, 1956, that life insurance in India was nationalized. About 154 Indian insurance companies, 16 non-Indian companies and 75 provident were operating in India at the time of nationalization. Nationalization wa s accomplished in two stages; initially the management of the companies was taken over by means of an Ordinance, and later, the ownership too by means of a comprehensive bill. The Parliament of India passed the Life Insurance Corporation Act on the 19th of June 1956, and the Life Insurance Corporation of India was created on 1st September, 1956, with the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost. In the year 1956, LIC had 5 zonal offices, 33 divisional offices and 212 branch offices, apart from its corporate office. Since life insurance contracts are long term contracts and during the currency of the policy it requires a variety of services needs felt in the later years to expand the operations and place a branch office at each district headquarter. Re-organization of LIC took place and large numbers of new branch offices were opened. As a result of the re-organization servicing functions were transferred to the branches, and branches were made accounting units. It worked wonders with the performance of the corporation. It may be seen from the fact that about 200.00 crores of New Business in 1957 the corporation crossed 1000.00 crores only in the year 1969-70, and it took another 10 years for LIC to cross 2000.00 crores mark of new business. But with the re-organization happening in the early eighties, by 1985-86 LIC had already crossed 7000.00 crores Sum Assured on new polic ies. Table 1. Growth of LIC between 1959 and 1999 Table 1. Growth of LIC between 1959 and 1999 S.No. Particulars 1957 1999 1 Annual Business: Sum Assured Policies First year premium 336.3 crores 8,00,000 14 crores 75606 crores 14857000 4171 crores 2 Business in force: Sum Assured Policies Renewal premium 1477 crores 5686000 74 crores 459201 crores 91726000 16136crores 3 Group Business in force: Sum Assured No. of Lives 5.29 crores 69558 crores 21671000 4 Life Fund: 41040 crores 127389.06 crores Source: Secondary Data Annual Reports of LIC. Progress of Indian Life Insurance Industry in the Post LPG Era Insurance sector reforms: In 1993, Malhotra Committee headed by former Finance Secretary and RBI Governor R.N. Malhotra was formed to evaluate the Indian insurance industry and recommend its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reformsà ¢Ã¢â€š ¬Ã‚ ¦ In 1994, the committee submitted the report and some of the key recommendations included: 1) Structure Government stake in the insurance Companies to be brought down to 50%. Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations. All the insurance companies should be given greater freedom to operate. 2) Competition Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry. No Company should deal in both Life and General Insurance through a single entity. Foreign companies may be allowed to enter the industry in collaboration with the domestic companies. Postal Life Insurance should be allowed to operate in the rural market. Only One State Level Life Insurance Company should be allowed to operate in each state. 3) Regulatory Body The Insurance Act should be changed. An Insurance Regulatory body should be set up. Controller of Insurance (Currently a part from the Finance Ministry) should be made independent. 4) Investments Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. GIC and its subsidiaries are not to hold more than 5% in any company (There current holdings to be brought down to this level over a period of time). 5) Customer Service LIC should pay interest on delays in payments beyond 30 days. Insurance companies must be encouraged to set up unit linked pension plans. Computerisation of operations and updating of technology to be carried out in the insurance industry The committee emphasized that in order to improve the customer services and increase the coverage of the insurance industry should be opened up to competition. But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry. Hence, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs.100 crores. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body. MAJOR POLICY CHANGES Insurance sector has been opened up for competition from Indian private insurance companies with the enactment of Insurance Regulatory and Development Authority Act, 1999 (IRDA Act). As per the provisions of IRDA Act, 1999, Insurance Regulatory and Development Authority (IRDA) was established on 19th April 2000 to protect the interests of holder of insurance policy and to regulate, promote and ensure orderly growth of the insurance industry. IRDA Act 1999 paved the way for the entry of private players into the insurance market which was hitherto the exclusive privilege of public sector insurance companies/ corporations. Under the new dispensation Indian insurance companies in private sector were permitted to operate in India with the following conditions: Company is formed and registered under the Companies Act, 1956; The aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed 26%, paid up equity capital of such Indian insurance company; The companys sole purpose is to carry on life insurance business or general insurance business or reinsurance business. The minimum paid up equity capital for life or general insurance business is Rs.100 crores. The minimum paid up equity capital for carrying on reinsurance business has been prescribed as Rs.200 crores. The Authority has notified 27 Regulations on various issues which include Registration of Insurers, Regulation on insurance agents, Solvency Margin, Re-insurance, Obligation of Insurers to Rural and Social sector, Investment and Accounting Procedure, Protection of policy holders interest etc. Applications were invited by the Authority with effect from 15th August, 2000 for issue of the Certificate of Registration to both life and non-life insurers. IRDA has so far granted registration to 12 private life insurance companies and 9 general insurance companies. If the existing public sector insurance companies are included, there are currently 13 insurance companies in the life side and 13 companies operating in general insurance business. Today LIC functions with 2048 fully computerized branch offices, 100 divisional offices, 7 zonal offices and the corporate office. LICs Wide Area Network covers 100 divisional offices and it connects all the branches through a Metro Area Network. LIC has tied up with some Banks and Service providers to offer an on-line premium collection facility in selected cities. LICs ECS and ATM premium payment facility is an addition to customer convenience. Apart from on-line Kiosks and IVRS, Info Centers have been commissioned at Mumbai, Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi, Pune and many other cities. With a vision of providing easy access to its policyholders, the LIC has launched its SATELLITE SAMPARK offices. These satellite offices are smaller, leaner and closer to the customer. The digitalized records of the satellite offices will facilitate the customer anywhere servicing and many other conveniences in the future. LIC continues to be the dominant life insurer eve n in the liberalized scenario of Indian insurance industries and is moving fast on a new growth trajectory surpassing its own past records. LIC has issued over one crore policies during the current year. Table-2: Total Life Insurance Premium (Rs. Crore) INSURER 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 LIC 149789.99 127822.84 90792.22 75127.29 63533.43 54628.49 49821.91 (17.19) (40.79) (20.85) (18.25) (16.30) (9.65) (42.79) Aviva 1891.88 1147.23 600.27 253.42 81.50 13.47 NA   Bajaj Allianz 9725.31 5345.24 3133.58 1001.68 220.80 69.17 7.14 Bharti Axa 118.41 7.78 NA   NA NA NA NA Birla Sunlife 3272.19 1776.71 1259.68 915.47 537.54 143.92 28.26 Future Generali 2.49 NA   NA NA NA NA NA HDFC Std 4858.56 2855.87 1569.91 686.63 297.76 148.83 33.46 ICICI Pru 13561.06 7912.99 4261.05 2363.82 989.28 417.62 116.38 IDBI Fortis 11.90   NA NA NA NA NA NA ING Vysya 1158.87 707.20 425.38 338.86 88.51 21.16 4.19 Kotak Mahindra 1691.14 971.51 621.85 466.16 150.72 40.32 7.58 Met Life 1159.54 492.71 205.99 81.53 28.73 7.91 0.48 Max New York 2714.60 1500.28 788.13 413.43 215.25 96.59 38.95 Reliance Life 3225.44 1004.66 224.21 106.55 31.06 6.47 0.28 Sahara 143.49 51.00 27.66 1.74 NA   NA NA SBI Life 5622.14 2928.49 1075.32 601.18 225.67 72.39 14.69 Shriram 358.05 184.17 10.33   NA NA NA NA Tata AIG 2046.35 1367.18 880.19 497.04 253.53 81.21 21.14 Private Total 51561.42 28253.00 15083.54 7727.51 3120.33 1119.06 272.55 (82.50) (87.31) (95.19) (147.65) (178.83) (310.59) (4124.31) Total (LIC+Private) 201351.41 156075.84 105875.76 82854.80 66653.75 55747.55 50094.46 (29.01) (47.38) (27.78) (24.31) (19.56) (11.28) (43.54) Note: Figure in bracket indicates the growth over the previous year in percent. Two way ANOVA Source of Variation SS df MS F P-value F crit Rows 49560705298 17 2915335606 37.2725415 4.7941E-36 1.723833402 Columns 1069788739 6 178298123.2 2.27954002 0.0417493 2.188760765 Error 7978104529 102 78216711.07 Total 58608598567 125 Analysis and Interpretation Table 2 shows total life insurance premium during the year 2001-02 to 2007-08. The proportion of premium collected by LIC out of total premium collected by life insurance industry is declined from 97% in 2001-02 to 74% in 2007-08. It indicates the increasing competition from private sector. ICICI prudential is becoming a stronger and stronger player by keeping over a lot of business of LIC. But still there is a lot of scope of development in the life insurance industry where private sector will be a challenge in the front of LIC. By applying ANOVA at 0.05 level of significance, It is being observed that there is a significance difference in the performance of LIC and other Private Sector insurance companies over a period of 2001-02 to 2007-08 Table 3: Total Life Insurance Premium Year (X) Total life insurance premium (Y) U=X-A/ H U2 UY 2002 50094.46 -3 9 -150283.38 2003 55747.55 -2 4 -111495.1 2004 66653.75 -1 1 -66653.75 2005 82854.80 0 0 0 2006 105875.76 1 1 105875.76 2007 156075.84 2 4 312151.68 2008 201351.41 3 9 604054.23 718653.57 0 28 693649.44 Source- compiled from table 2. Y = A+BX ÃŽÂ £Y=nA+B X ÃŽÂ £XY=A ÃŽÂ £X+BÃŽÂ £ X2 Y=A+Bu ÃŽÂ £Y=nA+B ÃŽÂ £U ÃŽÂ £uY=A ÃŽÂ £u+B ÃŽÂ £u2 ÃŽÂ £Y=nA A= ÃŽÂ £Y/n ÃŽÂ £uY=BÃŽÂ £ u2 B= ÃŽÂ £uY/ ÃŽÂ £u2 A= ÃŽÂ £Y/n A= 718653.57/7= 102664.79 B= ÃŽÂ £uY/ ÃŽÂ £u2= 693649.44/28= 24773.19 Y=A+B (X-2004) 102664.79+ 24773.19 (2012-2004) 102664.79+ 24773.19 (8) 300,850.35 crore Based on the middle year 2005, the trend value for the year 2012 can be calculated using the linear function Y=A+BX, where, AB are constant. If we substitute the values in the trend line equation, the expected total LIC premium for the year 2012 is Rs. 300,850.35 crores. It shows that the total business is in increasing trend. Table 4: Investment strategy of LIC (Rupees crore) Year Sector-wise Instrument-wise of which Total (2 to 5) Or (6 to 7) (end-March) Public Private Joint Co-operative Stock exchange securities Loans 1 2 3 4 5 6 7 8 1979 3411.9 618.1 29.9 527.8 2733.8 1853.1 4587.7 1980 3915.5 770.1 0 602.1 3113.4 2173.6 5287.7 1981 4707.8 647.2 0 665.5 3591.3 2725.6 6020.5 1982 5410.7 698.7 32 753 4040.6 2612 6894.4 1983 6189.7 787.4 32.7 825.2 NA NA 7835 1984 7020.8 891.4 40.1 905.3 NA NA 8857.6 1985 7919.5 1010.6 51.2 972.9 NA NA 9954.2 1986 9063.8 1121.3 68 1036.

Reputation Management :: Visibility, Transparency, Responsiveness

The research suggests that reputation comes from relationships and trust. Fombrun (1996) stated that to have a positive reputation managers must invest in building and maintaining good relationships. Building relationships with the company’s publics can result in a higher opinion of their reputation. These relationships also builds trust in the company. â€Å"Trust, like reputation, can take years and resources to build up, and while it may be difficult to break, it, again, like reputation, can take considerable time and even more resources to restore† (Bronn, 2010, pg. 310). With both relationships and trust, a company must be communicating with its publics. Van Riel and Fombrun (2007) developed six key communications principles that yield a high reputation: visibility, distinctiveness, authenticity, transparency, consistency and responsiveness (pg. 313). Applying these six principles to the Carnival case, we can determine if Carnival used them in managing their reput ation. Visibility deals with the public and market prominence of the organization or how much people know about the organization (pg 313). During this crisis, Carnival used social media to keep people updated about what was happening at sea. Before this instance, Carnival was a common name in the cruise industry. According to the Carnival website (www.carnival.com) Carnival is apart of the World’s Leading Cruise Lines alliance. Coombs (2010) said that, â€Å"a strong reputation prior to a crisis is an asset to organizations during the crisis† (pg. 478). Having this positive reputation before hand should help Carnival in the end with customers. Distinctiveness are the characteristics that set an organization apart from others. These characteristics can be its logo, slogan and trademarks (pg. 314). Carnival has all three, a distinct logo, slogan â€Å"Fun for All. All for Fun.† and trademarks on the names of ships, â€Å"Splendor†, â€Å"Freedom† and †Å"Liberty† to name a few of the 23 different ships (www.carnival.com). Authenticity helps make an organization real, genuine, accurate, reliable and trustworthy (pg. 314). By using social media and addressing the crisis head on, the company appears trustworthy to people. Carnival took responsibility for the accident and tried to solve it as quick as possible. The CEO of Carnival also made a public apology to those on the ship and to Carnival customers. Next, transparency is how much information and access stakeholders have about an organization (pg. 314). The Carnival Cruise Director John Heald went to his blog to offer updates and on-broad accounts to consumers and the press. Reputation Management :: Visibility, Transparency, Responsiveness The research suggests that reputation comes from relationships and trust. Fombrun (1996) stated that to have a positive reputation managers must invest in building and maintaining good relationships. Building relationships with the company’s publics can result in a higher opinion of their reputation. These relationships also builds trust in the company. â€Å"Trust, like reputation, can take years and resources to build up, and while it may be difficult to break, it, again, like reputation, can take considerable time and even more resources to restore† (Bronn, 2010, pg. 310). With both relationships and trust, a company must be communicating with its publics. Van Riel and Fombrun (2007) developed six key communications principles that yield a high reputation: visibility, distinctiveness, authenticity, transparency, consistency and responsiveness (pg. 313). Applying these six principles to the Carnival case, we can determine if Carnival used them in managing their reput ation. Visibility deals with the public and market prominence of the organization or how much people know about the organization (pg 313). During this crisis, Carnival used social media to keep people updated about what was happening at sea. Before this instance, Carnival was a common name in the cruise industry. According to the Carnival website (www.carnival.com) Carnival is apart of the World’s Leading Cruise Lines alliance. Coombs (2010) said that, â€Å"a strong reputation prior to a crisis is an asset to organizations during the crisis† (pg. 478). Having this positive reputation before hand should help Carnival in the end with customers. Distinctiveness are the characteristics that set an organization apart from others. These characteristics can be its logo, slogan and trademarks (pg. 314). Carnival has all three, a distinct logo, slogan â€Å"Fun for All. All for Fun.† and trademarks on the names of ships, â€Å"Splendor†, â€Å"Freedom† and †Å"Liberty† to name a few of the 23 different ships (www.carnival.com). Authenticity helps make an organization real, genuine, accurate, reliable and trustworthy (pg. 314). By using social media and addressing the crisis head on, the company appears trustworthy to people. Carnival took responsibility for the accident and tried to solve it as quick as possible. The CEO of Carnival also made a public apology to those on the ship and to Carnival customers. Next, transparency is how much information and access stakeholders have about an organization (pg. 314). The Carnival Cruise Director John Heald went to his blog to offer updates and on-broad accounts to consumers and the press.

Ensure Team Effectiveness Project

Momi jeweler| Sandeep kaur std01943| Aitt college| | Table of Contents 1 Name of the organisation2 2 Your position2 3 Type of position:2 4 Organisation background:2 5 Your role:2 6 Action plan:-2 7 Outcomes3 8 Alternative process3 8 IMPLEMENTATION4 10 Budget allocation4 11 conclusion4 1 Name of the organisation: momi jewellery shop 2 Your position:- Team leader of distribution and warehousing. 3 Type of position: – frontline management position. Reason for your new position developed: – there are many reason for develop team leader of distribution and warehousing position.The one reason is that nobody there to work for this situation, to achieve their goals, completes the organisation’s expectations. Work for company profit and production and provide good service to people so that every person can do their work with responsibility. 4 Organisation background:- it is a large jeweller firm. The organisation manufactures, imports and repairs jewellery for distributio n to its many stores in all states. There are 12 team members, from different background and with differing levels of expertise.Some team members have worked with the organisation and in this vision, for members of years. Other team members are relatively new, while some have worked in other department/ sections of the organisation before being transferred to your division. 5 Your role: – your initial role, therefore, is that of trouble shooter, problem solver and team facilitator. You need to bring this group of people together to form a cohesive, effective and productive team. 6 Action plan:- action plan are very necessary to get a team goals and their expectation ,This Action Plan builds upon the Strategic Framework developed as a, result of an extensive research programme with businesses in the Jewellery shop, 2 The purpose of the research was to produce evidence to inform the development of a Strategy and Action Plan to support businessgrowth and development in the secto r. While the focus wastherefore on factors affecting economic development, the researchcovered broader aspects relating to sustainability, i. . environmentaland social factors. As a result a number of indirect factors have beenidentified and these have been taken into account in formulating boththe Strategy and Action Plan. 3The Actions have short medium and long lead delivery times. Each Action has been developed as aPracticalactivity, although some may be considered to be preparationfor future delivery. Where possible they build upon broaderinterventions already on offer to the business community from arange of stakeholders and providers. Apprenticeship orImproversNetwork:-Identify those companies that would support andshare the cost of developing a network which enableda small number of apprenticeships to be awardedeach year and provided work placements forimprovers. Starters fund Establish small grants schemes to supportbusiness start-ups with access to equipmentand purchase of tools. 7 Outcomes 1 Improved understandingand focus on trainingavailable and successionplanning. 2 Raised awareness of thesector 3More new product andimprove turnaround times (reference=http://www. jewelleryquarter. net/wp-content/uploads/2009/10/jibss_action_plan24909. df) 8 Alternative process If these process will not working then we have to use alternative process so the person can perform well like forming, storming, norming and performing these are the necessary stages for team development. So there must be training process so the employ can learn properly and perform properly 8 IMPLEMENTATION The following section sets out some proposals for the adoption andimplementation of the Action Plan. Action 1: An early activity should be to gain formal recognition for the Plan from Jewellers Association Company as principal funders of itsdevelopment.The achievement of this recognition should be led bysupport of the Steering Group and the nominated Business Champion. Action plan 2 shou ld bring together appropriate representativesfrom those agencies identified in the Plan to confirm their support and to identify/confirm the lead organisation for each activity. This group,or some form of it, should agree to develop a formal remit and to actas a project management group for implementation. Action plan 3 An assessment of the resourcing implications ofimplementation and delivery. This should include identifyingfunding to enable the employment of a co-ordinator. 10 Budget allocationAction | Budget / Expenses ($)| 01| 5000| 02| 2750| 03| 3600| 04| 8900| 11 conclusion In the end we can say that in this large jewellery shop which is working for manufactures, import and repairs jewellery and it has many store in all states. I just have appointed there for team leader as a frontline management position so I can work for complete its expectation and goals. there were lack communication so I made some of action plan which will good shop and it will increase its productivity. 12 reference Books and website:- (http://www. jewelleryquarter. net/wp-content/uploads/2009/10/jibss_action_plan24909. pdf)

The Effects Of Financial Stress Among Domestic College...

The Cause of Financial Stress among Domestic College Students Money is always a common factor leading to stress. People determine financial stress as a kind of stress caused by debts and inevitably huge amount spending (Hillman, 2015, para.4). A college student faces $40000 tuition every year, so it is fair to say college students struggle with financial stress. Moreover, financial stress has the tendency to become an â€Å"ongoing and chronic type of stress†, which will attribute to several seriously and consistently mental and physical health problem, like depression, anxiety, and weight gain (Hillman, 2015, para.5). As an international student, it is hard for me to imagine that domestic students the same age as me start life with a big amount of debt because they had to pay very high tuition fees as their parents don’t support or don’t have the means to support them financially in college. Additionally, domestic college students indeed confront severe financia l problems. Based on a survey conducted in 2013 by the American College Health Association, â€Å"35 percent of students said their finances were ‘traumatic’ or ‘very difficult’ to handle† (as cited in Fosnacht Dong, 2013, p.5). Thus, a question is arising: what causes financial stress among domestic college students. After reviewing the literature and watching online interviews and celebrities’ speeches, I noticed that this question can be explored by investigating the college tuition and how domestic undergraduatesShow MoreRelatedIs College Education A Tax Policy Program? Essay1635 Words   |  7 PagesGraduating from college is such a huge accomplishment in people’s lives. They have worked hard to earn their degrees, dealt with all those stress and struggles from the day to day challenges of college. After all those sleepless nights, they finally walk up to receive their diplomas and take in a big sigh. Everything in life will be b etter now. A college education is going to make their lives easier by taking all the previous burden away, leading them to establish themselves and save for the futureRead MoreShould College Students Be Paid For Their Education?2215 Words   |  9 Pagesover and students start preparing for their futures in college, choices have to be made regarding the financial route they are willing to take to fund their education. Some college students are fortunate enough to receive plenty of aid that covers the cost of their tuition and housing, others can pay for the total net cost themselves, but then there is the majority of students who have to take out loans because they don’t have enough financial support. Loans make it possible for those students to continueRead MoreAre Men Being Left Behind?1161 Words   |  5 Pagesit is still unlikely for them to reach an equal wage level among their peers. This inequality leads to future consequences that can cause women of color stress lev els to soar high. Since African-American and Hispanic women earn less money, they are loaded with debt from their college. It takes them even a longer time to pay off the debt than men. Gorman (2015) noted that as more student loans are unable to be paid, it has a negative effect on our economy. There are less homes and cars being boughtRead MoreThe Conflict Theory Of Deviance In Society1525 Words   |  7 Pagescontinual. An example of this in modern times would be the attempting to reach gender equality, as seen in feminist movements. This movement attempts to distribute power equality among men and women whether socially or in the workforce, and eliminate discrimination. As a result, there has been a significant increase of women college graduates, women in the workforce or army, and other opportunities once not available to women. From a conflict theorist perspective, these changes- increasing equality in womenRead MoreThe Affects of Abuse and Neglect Later in Life2477 Words   |  10 Pagesstatus, grade point averages (GPA), or psychological imbalances of individuals later in life. This study is important to address to the public of the long-term affects of abuse and neglect in relation to such topics. The subjects surveyed are college-aged students ranging from ages 18 to 25. This survey is based on abuse or neglect from the subject’s parents or guardians at any point from birth to age 16 or 18. The cut off age group is dependant upon how old the subject was once they moved out of theRead MoreInternational Student Stress6675 Words   |  27 PagesAcademic Stress Among College Students: Comparison of American and International Students Ranjita Misra and Linda G. Castillo Texas AM University This study compared academic stressors and reactions to stressors between American and international students using Gadzella’s Life Stress Inventory (B. M. Gadzella, 1991). Five categories of academic stressors (i.e., frustrations, conflicts, pressures, changes, and self-imposed) and four categories describing reactions to these stressors (i.e., physiologicalRead MoreArgumentative Essay : The Problem Of Poverty1520 Words   |  7 PagesArgumentative Paper Just like the 46 million Americans like her, twenty-four-year-old Desiree Metcalf is stuck in poverty. Metcalf’s is among those Americans that brought poverty from their childhood to adulthood. After high school, she had gotten a full scholarship to the University of Florida but got pregnant. Now she is a mother to three children, whom all have different fathers and she lives in a two bedroom apartment in Bath, New York. She used to be an alcoholic and was into self harm. PlusRead MoreChallenges Faced By Mature Students Essay1896 Words   |  8 PagesIntroduction Mature students’ involvement in higher education is life enhancing and vital to social mobility, but current changes to higher education fees and adult skills strategy represent a substantial risk to forthcoming partaking. This research aims at exploring the challenges faced by mature students to access higher education and the motivating factors that helps them to pursue or resume their academic studies. Whatever the motive, going to higher education as a mature student can be very gratifyingRead MoreEssay on The Phillippines Economy1234 Words   |  5 Pagesinvestment laws, which created a more attractive business alliance and stronger commercial relationships with the United States. Because of these events, the United States remains to be the number one trading partner of the Philippines, and they are among the United States top 25 trading partners. According to President Estradas speech on January 8, 1999, thanks to the actions of former president Ramos our country continues to enjoy positive growth despite the crisis in Asia. In the region lastRead MoreImpact of Globalization on Business and Management Education3765 Words   |  16 Pageswhite collared employees of BPOs, IT Service Companies, Pharmaceutical giants, and Manufacturing industries. Wait a minute don t you see a chord here...the only ones saying yes seem to be people from the middle and upper middle class families with college degrees and good jobs. No say farmers who continue to commit suicide and for whom the tomorrow holds a bleak future as the events in Nandigram and Singur show, no say unskilled labourers who continue to toil in poor conditions with very little pay

Prince William Augustus Profile Butcher Cumberland

Born April 21, 1721 in London, Prince William Augustus was the third son of future King George II and Caroline of Ansbach. At the age of four, he was conferred with the titles Duke of Cumberland, Marquess of Berkhamstead, Earl of Kennington, Viscount of Trematon, and Baron of the Isle of Alderney, as well as was made a Knight of the Bath. The majority of his youth was spent at Midgham House in Berkshire and he was schooled by a series of notable tutors including Edmond Halley, Andrew Fountaine, and Stephen Poyntz. A favorite of his parents, Cumberland was directed towards a military career at an early age. Joining the Army Though enrolled with the 2nd Foot Guards at age four, his father desired that he be groomed for the post of Lord High Admiral. Going to sea in 1740, Cumberland sailed as a volunteer with Admiral Sir John Norris during the early years of the War of the Austrian Succession. Not finding the Royal Navy to his liking, he came ashore in 1742 and was permitted to pursue a career with the British Army. Made a major general, Cumberland traveled to the Continent the following year and served under his father at the Battle of Dettingen. Army Commander In the course of the fighting, he was hit in the leg and the injury would trouble him for the remainder of his life. Promoted to lieutenant general after the battle, he was made captain-general of British forces in Flanders a year later. Though inexperienced, Cumberland was given command of the Allied army and began planning a campaign to capture Paris. To aid him, Lord Ligonier, an able commander, was made his advisor. A veteran of Blenheim and Ramillies, Ligonier recognized the impracticality of Cumberlands plans and correctly advised him to remain on the defensive. As French forces under Marshal Maurice de Saxe began moving against Tournai, Cumberland advanced to aid the towns garrison. Clashing with the French at the Battle of Fontenoy on May 11, Cumberland was defeated. Though his forces mounted a strong attack on Saxes center, his failure to secure nearby woods led to him having to withdraw. Unable to save Ghent, Bruges, and Ostend, Cumberland retreated back to Brussels. Despite having been defeated, Cumberland was still viewed as one of Britains better generals and was recalled later that year to aid in putting down the Jacobite Rising. The Forty-Five Also known as The Forty-Five, the Jacobite Rising was inspired by the return of Charles Edward Stuart to Scotland. The grandson of the deposed James II, Bonnie Prince Charlie raised an army largely composed of the Highland clans and marched on Edinburgh. Taking the city, he defeated a government force at Prestonpans on September 21 before embarking on an invasion of England. Returning to Britain late in October, Cumberland began moving north to intercept the Jacobites. After advancing as far as Derby, the Jacobites elected to retreat back to Scotland. Pursuing Charles army, the lead elements of Cumberlands forces skirmished with the Jacobites at Clifton Moor on December 18. Moving north, he arrived at Carlisle and forced the Jacobite garrison to surrender on December 30 after nine-day siege. After briefly traveling to London, Cumberland returned north after Lieutenant General Henry Hawley was beaten at Falkirk on January 17, 1746. Named commander of forces in Scotland, he reached Edinburgh by the end of the month before moving north to Aberdeen. Learning that Charles army was to the west near Inverness, Cumberland began moving in that direction on April 8. Aware that Jacobite tactics relied on the fierce Highland charge, Cumberland relentlessly drilled his men in resisting this type of attack. On April 16, his army met the Jacobites at the Battle of Culloden. Instructing his men to show no quarter, Cumberland saw his forces inflict a devastating defeat on Charles army. With his forces shattered, Charles fled the country and the rising ended. In the wake of the battle, Cumberland instructed his men to burn houses and kill those found to be sheltering rebels. These orders led him earned the sobriquet Butcher Cumberland. A Return to the Continent With matters in Scotland settled, Cumberland resumed command of the Allied army in Flanders in 1747. During this period, a young Lieutenant Colonel Jeffery Amherst served as his aide. On July 2 near Lauffeld, Cumberland again clashed with Saxe with similar results to their earlier encounter. Beaten, he withdrew from the area. Cumberlands defeat, along with the loss of Bergen-op-Zoom led both sides to make peace the following year via the Treaty of Aix-la-Chapelle. Over the next decade, Cumberland worked to improve the army, but suffered from decreasing popularity. The Seven Years War With the beginning of the Seven Years War in 1756, Cumberland returned to field command. Directed by his father to lead the Army of Observation on the Continent, he was tasked with defending the familys home territory of Hanover. Taking command in 1757, he met French forces at the Battle of Hastenbeck on July 26. Badly outnumbered, his army was overwhelmed and compelled to retreat to Stade. Hemmed in by superior French forces, Cumberland was authorized by George II to make a separate peace for Hanover. As a result, he concluded the Convention of Klosterzeven on September 8. The terms of the convention called for the demobilization of Cumberlands army and a partial French occupation of Hanover. Returning home, Cumberland was severely criticized for his defeat and the terms of the convention as it exposed the western flank of Britains ally, Prussia. Publically reprimanded by George II, despite the kings authorization of a separate peace, Cumberland elected to resign his military and public offices. In the wake of Prussias victory at the Battle of Rossbach in November, the British government repudiated the Convention of Klosterzeven and a new army was formed in Hanover under the leadership of Duke Ferdinand of Brunswick. Later Life Retiring to Cumberland Lodge in Windsor, Cumberland largely avoided public life. In 1760, George II died and his grandson, the young George III, became king. During this period, Cumberland battled with his sister-in-law, the Dowager Princess of Wales, over the role of regent during times of trouble. An opponent of the Earl of Bute and George Grenville, he worked restore William Pitt to power as prime minister in 1765. These efforts ultimately proved unsuccessful. On October 31, 1765, Cumberland suddenly died from an apparent heart attack while in London. Troubled by his wound from Dettingen, he had grown obese and had suffered a stroke in 1760. The Duke of Cumberland was buried beneath the floor in the Henry VII Lady Chapel of Westminster Abbey. Selected Sources Royal Bershire History: Prince William, Duke of CumberlandWilliam AugustusPrince William, Duke of Cumberland

Soc 101-Family Through Different Sociological Perspectives

Running Head: FAMILY THROUGH DIFFERENT SOCIOLOGICAL PERSPECTIVES Family Through Different Sociological Perspectives Stephani Marlow SOC 101 Instructor Marian Spaid-Ross Jan 15th, 2012 All families are unique. A few decades ago, the most common type of family was the mother and father living with their unmarried children. Today, families are vastly different including more single-parent households than ever before, stepfamilies, and adopted families, and grandparents raising their grandchildren, as well as young married couples having to move back in with their parents because they do not have the money to afford their own living arrangements yet. Whatever type of family you have there are different perspectives in which to view it,†¦show more content†¦The fifth function families perform is Affection and Companionship. In an ideal and perfect situation, the family provides its kin with a caring environment and close, trusting relationships which in turn make the family members feel secure, safe, and happy. Although, way to often, individuals view their family home as unhappy and or abusive. Still, family members expect their kin to care for them, be und erstanding, and to be supportive to them in a time of crisis. An example would be with my own mother, when last week, although she has barely spoken to her mother or other family members in five months, she told me that if she had a big problem she would go to her mother because she knows that her mother would give the best advice. Families, no matter what may tear them apart they will almost always find their way back together. Although individuals may find family-like friendships and relationships at school or at work the basic family unit is still almost always the tighter group. The sixth and final main function a family provides is Provision of Social Status. Every baby, when they are born have come into an ascribed status based on their familys reputation and background, as well as the reputation of any siblings. For example, children that are close together in age will attend high school one right after the other and the teachers will likely already have an idea of what the y ounger siblingShow MoreRelatedSociology1037 Words   |  5 PagesSOC 101 WRITTEN ASSIGNMENT 1 People are complex. Our various characteristics, including but not limited to, behaviors, ideals, perspectives, attitudes, and physical attributes make us who we are as individuals and society as a whole. The macrocosm of society, by default of the people within it, is supremely complex. As we would expect, society is evolutionary and as such, there are numerous theoretical approaches to its study. The three major theoretical approaches are examined here. TheRead MoreSociology Exam Study Guide3121 Words   |  13 Pagesmatters: o our lives are affected not only by our individual characteristics, but by our place in the social world. Sociological Mindfulness ââ€" ª Sociological mindfulness is tuning in to how the social world works ââ€" ª Familiar with surroundings(don’t notice the obvious ââ€" ª Thanksgiving Ex: women cleaning up vs. men watching football. ââ€" ª Families teach infants( adults ââ€" ª School, church, way girls behave, way boys behave ââ€" ª Interdependent Read MoreEssay about The Impact of Divorce on Children1401 Words   |  6 Pagesqualities (Cobb, 2014a). The three main factors that influence personality are birth order, temperament, and personality type (book p 169, lecture in text). Personality develops by different experiences that the child goes through (Cobb, 2014a). Many different things affect an individual’s personality (Cobb, 2014a). There are different personality types that come from our personality preferences (Bristor, 2010). A child’s personality could be affected by their parents divorce. One trait of personalityRead MoreFemale Circumcision2965 Words   |  12 Pagesï » ¿1 Female Circumcision: A Sociological Perspective Aaron Robins Joe Pellegrino Prof. Romain Sociology 101 November 29, 2005 Female Circumcision: A Sociological Perspective Female Genital Mutilation (FGM) or a less ethnocentric term Female Circumcision is a form of violence that is approved by the societies in which it is practiced. About 183 million women have undergone such mutilation. 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Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley

Case Revenue free essay sample

In looking over the past several years of quarterly earnings reports at the Home Security Division, she noticed that the first-quarter earnings were always poor, the second-quarter earnings were slightly better, the third-quarter earnings were again slightly better, and the fourth quarter always ended with a spectacular performance in which the Home Security Division managed to meet or exceed its target profit for the year. She also was concerned to find letters from the companys external auditors to top management warning about an unusual use of standard costs at the Home Security Division. When Ms. Cummins ran across these letters, she asked the assistant controller, Gary Farber, if he knew what was going on at the Home Security Division. Gary said that it was common knowledge in the company that the vice president in charge of the Home Security Division, Preston Lansing, had rigged the standards at his division in order to produce the same quarterly earnings pattern every year. According to company policy, variances are taken directly to the income statement as an adjustment to cost of goods sold. Favorable variances have the effect of increasing net operating income, and unfavorable variances have the effect of decreasing net operating income. Lansing had rigged the standards so that there were always large favorable variances. Company policy was a little vague about when these variances have to be reported on the divisional income statements. While the intent was clearly to recognize variances on the income statement in the period in which they arise, nothing in the companys accounting manuals actually explicitly required this. So for many years, Lansing had followed a practice of saving up the favorable variances and using them to create a nice smooth pattern of earnings growth in the first three quarters, followed by a big â€Å"Christmas present† of an extremely good fourth quarter. (Financial reporting regulations forbid carrying variances forward from one year to the next on the annual audited financial statements, so all of the variances must appear on the divisional income statement by the end of the year. ) Ms. Cummins was concerned about these indings and attempted to bring up the subject with the president of Merced Home Products but was told that â€Å"we all know what Lansings doing, but as long as he continues to turn in such good reports, dont bother him. † When Ms. Cummins asked if the board of directors was aware of the situation, the president somewhat testily replied, â€Å"Of course they are aware. † Required: * 1. How did Preston Lansing probably â€Å"rig† th e standard costs—are the standards set too high or too low? Explain. * 2. Should Preston Lansing be permitted to continue his practice of managing reported earnings? 3. What should Stacy Cummins do in this situation? Accounting queston how to rig standard cost for favorable variances? Here is my question, A VP of a company is rigging standard cost each year to show a large favorable variance. How does he do that? In the first quarter earnings are poor, a little better in second and third quarter and really great in the fourth quarter. How is he doing this? * 3 years ago * Report Abuse Additional Details the vice president had rigged the standards at his division in order to produce the same quarterly earnings pattern every year. According to company policy, variances are taken directly to the income statement as an adjustment to cost of goods sold. Lansing had rigged the standards so that there were always large favorable variances. How did Preston Lansing probably â€Å"rig† the standard costs – are the standards set too high to too low? Explain. Thanks for any help.. this is all the information I have. 3 years ago by Daniel Member since: June 19, 2009 Total points: 426 (Level 2) * Add Contact * Block Best Answer Chosen by Voters The standards are set too high. When the products are run at a lower cost than the standard, then this produces a favorable variance. The COGS and variance should net to the correct cost though (this is the reason the system creates the variance). The bigger problem here is that any inventory is likely to be overvalued because of wrong standards. Finished goods inventory is valued at the standard cost. So if there is a lot of inventory at an inflated cost, then the COGS is being reduced on the income statement too much because of this. If the inventory were to be revalued at its correct standard cost, there would be a large expense to the income statement. I would say he has been building inventory, more and more each quarter. Source(s): www. cost-accounting-info. com Standards Rigging Standards Case 10-27 /Rigging Standards 1) How did Preston Lansing Probably ‘rig’ the standard costs-are the standards set too high or too low? Explain The standards are set too high. When the products are run at a lower cost than the standard, then this produces a favorable variance. The cost of goods sold and variance should net to the correct cost though and this is the reason the system creates the variance. Lansing set a loose standard which the standard quantities and standard price are high, flowing this situation favorable variances will ordinarily result from operations. When the standard cost set artificially high, the standard cost of goods sold also will be artificially high, and then the division’s net operating income will be depressed until the favorable variances are recognized. If Lansing saves the favorable variances, he can release just enough in the second and third quarters to show some improvement and then he can release all of the rest in the last quarter, by creating Is this essay helpful? Join OPPapers to read more and access more than 650,000 just like it! get better grades the annual Christmas present. The problem is any inventory is to be overvalued because of wrong standards. Finished goods inventory is valued at the standard cost. If there is a lot of inventory at an inflated cost, then the cost of goods sold is being reduced on the income statement too much because of this. If the inventory were to be revalued at its correct standard cost, there would be a large expense to the income statement. It is better to build a inventory each quarter. ) Should Preston Lansing be permitted to continue his practice of managing reported earning? He should not permit to continue this practice, because it distorts the quarterly earnings for both the division and the company. The distortions of the division’s quarterly earnings are troubling because the manipulations may mask real signs of trouble and it may mislead external users of the financial statements. Lansing sho uld not be rewarded for manipulating earnings because the permissive attitude of top Posting 2 CASE 9–26 Ethics and the Manager [LO3] Lance Prating is the controller of the Colorado Springs manufacturing facility of Prudhom Enterprises, Inc. The annual cost control report is one of the many reports that must be filed with corporate headquarters and is due at corporate headquarters shortly after the beginning of the New Year. Prating does not like putting work off to the last minute, so just before Christmas he prepared a preliminary draft of the cost control report. Some adjustments would later be required for transactions that occur between Christmas and New Years Day. A copy of the preliminary draft report, which Prating completed on December 21, follows: Tab Kapp, the general manager at the Colorado Springs facility, asked to see a copy of the preliminary draft report. Prating carried a copy of the report to Kapps office where the following discussion took place: * Kapp: Wow! Almost all of the variances on the report are unfavorable. The only favorable variances are for supervisory salaries and industrial engineering. How did we have an unfavorable variance for depreciation? * Prating: Do you remember that milling machine that broke down because the wrong lubricant was used by the achine operator? * Kapp: Yes. Prating: We couldnt fix it. We had to scrap the machine and buy a new one. Kapp: This report doesnt look good. I was raked over the coals last year when we had just a few unfavorable variances. * Prating: Im afraid the final report is going to look even worse * Kapp: Oh? Prating: The line item for industrial engineering on the report is for work we hired Sanchez Engineering to do for us. The original contract was for $160,000, but we asked them to do some additional work that was not in the contract. We have to reimburse Sanchez Engineering for the costs of that additional work. The $154,000 in actual costs that appears on the preliminary draft report reflects only their billings up through December 21. The last bill they had sent us was on November 28, and they completed the project just last week. Yesterday I got a call from Mary Jurney over at Sanchez and she said they would be sending us a final bill for the project before the end of the year. The total bill, including the reimbursements for the additional work, is going to be†¦Kapp: I am not sure I want to hear this. * Prating: $176,000Kapp: Ouch! Prating: The additional work added $16,000 to the cost of the project.