Reference no: EM132791000

Fabric Design Limited (It is popularly known as FDL in the market) was set up in 2010 to manufacture and sell beddings and tableware such as sheet sets and tablecloths. After close to ten years of operation, the company has expanded its product range to over 100 items and has been known in the industry for the manufacture of reasonable quality products at very competitive prices.

• FDL traditionally purchased its fabric needs from external companies in large quantities. This allowed the company to keep its fabric costs low by taking advantage of quantity discounts. However in recent years it had become difficult to source reasonable quality fabric at the low purchase prices needed to remain competitive in its market. As a result, in 2018 FDL acquired SE Production Ltd, one of its existing fabric suppliers. After acquisition, FDL was split into three divisions - the Bed-ware Division, Tableware Division and Fabric Division.
• SE Production (Fabric Division) was acquired solely to manufacture the fabrics required by the Bed-ware and Tableware Divisions. Therefore it did not sell any of its fabrics on the external market. However the Bed-ware and Tableware Divisions were able to purchase fabrics on the external market as it was thought this would motivate the Fabrics Division to remain competitive.
• The Board of Directors of Fabric Design Limited gave the managers of the three divisions, authority to make all decisions related to their divisions, subject to the requirement that these decisions support the best interests of the company as a whole. Both the Bed-ware and Tableware divisions are treated as investment centres. All managers receive substantial bonuses based on the performance of their divisions.

Required:

Problem 1: Identify the specific means of competitive advantage of Fabric Design Limited? You must use the information in the question to explain your answer fully.

Problem 2: Explain why it is important to understand FDL's Key Success Factors when designing its management accounting system.

Problem 3: Identify whether FDL is operating based on a centralised or decentralised organisational structure? Explain your answer fully.

Problem 4: Would you recommend the Fabric Division be treated as a profit centre, engineered cost centre, or a discretionary cost centre? Explain your answer fully.