GROUP 2

PREMIER CEMENT CORPORATION

I.

Point of View:

Mr. Jose Ylagan, Vice-President for Finance of Premier Cement

II.

Corporation as well as one of the members of Board of Directors.

Statement of the Problem:
Premier Cement Corporations cost of sales were
signicantly higher because of the choices of supplier companies due to agency
problem which resulted to ending in a negative gross profits for two consecutive

years.
III.
Objectives
To provide effective and efficient courses of action to medicate unsustainable cost of

sales.
To resolve the conflict of interest between the Board of Directors and the business

IV.

managers of Premier Cement Corporation.

SWOT Analysis

Strenght:

The company is still able to generate acceptable amoount of sales

effectively. The companys VP for finance is an experience businessman as well as other

members of the BOD.
Weaknesses:

Unsustainable cost of goods sold. Inefficient and poor choice of raw

material suppliers. There is only one distributor of PCCs product.

Opportunities:

PCC is currently focused and centered on cement production, production

of raw materials for their daily operations is beyond their scope of operations. This provides
oppurtunity for PCC to be able to reselect and reassess their choice of suppliers with lesser
costs. PCC has one distributor company, with this, adding another distributor companies will
be an area for sales improvement for the company.
Threats:

On the year 1971, the cement industry has faced decrease in income due

to lower capacity of production which may possibly reoccur in the future. There are few
business players in the cement industry which is a threat for Premier Cement Company.
V.

Areas of Consideration

The machinery, equipment and other plant assets of the company were acquired through

a long-term loan from the development bank.

PCC is proven to be currently ineffective and ineffecient in acquiring its raw materials to

be used for goods and services

Mr. Ylagan and Mr. Mapa still sees and oppurtunity for PCC to acquire materials at less

cost.
VI.
Alternative Courses of Action
A. Alternative A: Mr. Ylagan should find other suppliers where they can obtain raw material
at minimum cost but still with good quality aside from the fix suppliers that they currently
have.
Advantages: The company will have higher profit margin because there will be lesser cost of
sales, therefore, ending the problem of negative gross profit for two consecutive years. The
company will be able to cope up from losses and stay away from the possibilities of closing the
business. Moreover, this will solve the conflict of interest in the company.
Disadvantages: The Board of Directors may not approve since the current suppliers of PCC
are companies which members of the BOD are also major stakeholders. Additionally, it will take
time for PCC to establish close business relationship with new suppliers.
B. Alternative B: Since PCC is currently only operating on around 50 - 60% of their
maximum capacity, it can be assumed that PCC has many unused assets. To be able to
absorb the companys current net losses and provide liquidity for PCC, the company can
sell 15% of its unused equipment.
Advantages: This would lessen the expenses of the company for there will be less recorded
expenses for depreciation. The sale would also provide the company cash that it may use to
boost production and increase capacity.

Disadvantage: The disadvantage of this course of action would be increasing the risk of
spending more for production should the company recover sooner than expected and would
need additional equipment to employ in their production.
VII.

Recommendation

It is recommended that Mr. Jose Ylagan should take Alternative Course of Action A which is
to find new suppliers which they can but raw materials at minimum cost. There seems to have
agency problem within the PCC. The owners of the supplier companies of PCC are also
stakeholders of the same company. To add, Mr. Jose Ylaga could proposed to add incentives to
the employees if ever the company performs well. He should present to the BOD that finding
new supplier which will provide them lesser cost will help the profitability for the company and
provide higher reuturns to the stakeholders. Moreover, he could also propose to find other
channels of distribution for their products other than Premier Marketing Corporation to reach
wider product recognition so that sales will increase.