Premium Essay

Case Study Airtex Aviation

In:

Submitted By vivians
Words 2513
Pages 11
Marshall School of Business University of Southern California

AirTex Aviation
Teaching Note
Purpose of Case This case was written to illustrate a basic control system choice. Two young and inexperienced MBA graduates purchase a small aviation company that is in financial trouble. If the company will survive, it will do so only with tight management of cash and new accounting and control systems. The company also needs to make better operating decisions. However, the new owners do not know the business well, so they cannot either centralize authority or be very prescriptive to the line managers as to how to run their operations. As a consequence, they design a new control system that makes each operating department a profit center. With coaching of department managers about good business practices, they manage the business on a decentralized fashion and provide the department managers with incentives for generating good results. The case raises a number of issues that managers face in setting up such a decentralized control system. These include issues of autonomy, cost allocations, and transfer pricing. Suggested Assignment Questions 1. Did AirTex need a new control system at the time of the takeover? 2. Evaluate the control system that Frank and Ted implemented. Should anything have been done differently? Case Analysis Does AirTex Need a New Control System? A reasonable way to start the discussion is to ask, “How is AirTex doing?” Exhibit 2 in the case shows the income for the 4 months immediately preceding the purchase. These
Professors Kenneth A. Merchant and Wim A. Van der Stede wrote this teaching note as an aid to instructors using the AirTex Aviation case. Teaching Note Source: Copyright  2003 by Kenneth A. Merchant and Wim A. Van der Stede. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted

Similar Documents

Premium Essay

Airtex Aviation Case Study

...AirTex Aviation 1. Did AirTex need a new control system at the time of the takeover? * “The management system that was in place was one woman who magically kept everything in her head. There was limited and almost incomprehensible formal system.” Sarah Arthur, the company’s accountant, had complete autonomy over the company’s information, and she kept this information private. * AirTex was in need of a more formalized accounting system, since accounting was a central department of the company, and profitability was a key measure to ensure the success of the company at the time of the takeover. * Also, Ted and Frank had plans to dispose of Sarah Arthur, who was acting manager upon their arrival. However, given her central role within the company for 20 years, she possessed a plethora of information, which was undocumented and she retained in her head * AirTex should make an effort to document and provide proper procedure for all major processes. It will ensure that knowledge is not lost with the departure of key personnel. However, Ted and Frank should be cautious about “rubbing people the wrong way”, especially their employees who have worked at the company for 10+ years. These individuals will be the most resistant to change and will perceive Ted and Frank as new and disruptive. * Managers were unaware of their department’s profitability. It was kept very secretive by Sarah Arthur, the accountant. As a result, managers didn’t know how big their...

Words: 1109 - Pages: 5

Premium Essay

Airtex Aviation

...Case Study: AirTex Aviation Background: AirTex Aviation was a fixed – base operation at San Miguel airport in Texas responsible for servicing the non-airline aviation market. The company was headed by Bill Dickerson and was close to bankruptcy. For the fiscal year of 1989 it made a loss of $500,000 on sales of $10M. Ted Richards and Frank Edwards purchased it on December 28, 1989 for $500,000. They knew each other from Harvard Business School and sought to find a business and turn it around using their expertise. Neither had any experience in the aviation market. The Business: The business that Frank and Ted purchased had several informal departments: 1. Fuel line activity – Headed by Will Leonard and consisting of 12 employees, operations generated revenue through retail fueling, wholesale fueling, fuel handling, rental cars and tie-downs (storage of air craft) 2. Service and Parts – Headed by Carl Green and consisting of 6 mechanics. Quality was high but department was inefficient. 3. Flight Training – Managed by Roy Douglas and consisting of 7 instructor pilots and three dispatchers, operations generated revenue through flight training and the pilot shop which sold flight supplies. 4. Avionics - Had a single employee, Leon Praxis, who repaired radios and electronic navigational equipment. 5. Aircraft Sales – AirTex had been a dealer of Piper Aircraft. AirTex became unable to finance the aircraft, fired the salespeople and closed the department...

Words: 557 - Pages: 3

Premium Essay

Airtex

...Airtex Aviation Case Study AirTex Aviation 1. Did AirTex need a new control system at the time of the takeover? * “The management system that was in place was one woman who magically kept everything in her head. There was limited and almost incomprehensible formal system.” Sarah Arthur, the company’s accountant, had complete autonomy over the company’s information, and she kept this information private. * AirTex was in need of a more formalized accounting system, since accounting was a central department of the company, and profitability was a key measure to ensure the success of the company at the time of the takeover. * Also, Ted and Frank had plans to dispose of Sarah Arthur, who was acting manager upon their arrival. However, given her central role within the company for 20 years, she possessed a plethora of information, which was undocumented and she retained in her head * AirTex should make an effort to document and provide proper procedure for all major processes. It will ensure that knowledge is not lost with the departure of key personnel. However, Ted and Frank should be cautious about “rubbing people the wrong way”, especially their employees who have worked at the company for 10+ years. These individuals will be the most resistant to change and will perceive Ted and Frank as new and disruptive. * Managers were unaware of their department’s profitability. It was kept very secretive by Sarah Arthur, the accountant. As a result, managers didn’t know how big...

Words: 1119 - Pages: 5

Premium Essay

Mpc Activities Summary

...In-class activity 1: Identifying control problems and MCS Source case / paper: Wong’s Pharmacy (textbook p. 20) AND Leo’s Four-Plex Theater (textbook p. 19) In-class activity questions / objectives: Wong’s Pharmacy: 1.      What is the main problem facing Wong’s pharmacy? 2.      What options are available to Thomas Wong? Leo’s Four-Plex Theater: 3.      What are the key controls problems at Leo’s Four-Plex Theater? 4.      State the control measures implemented in the theatre and the purpose and limitations of each 5.      Are the problems caused primarily by inadequate existing controls and what improvements would you suggest? In-class activity 2: The role of management accounting information in controlling an organisation Source case / paper: Kaplan, R. S., 1984, The Evolution of Management Accounting, The Accounting Review, Vol. LIX, No. 3, pp. 390-418 (SO page 92 to 120). In-class activity questions / objectives: 1.      What is the role of accounting information in controlling an organisation? 2.      Outline the historical development of the use of management accounting information to control organisations. 3.      Why may profit not be a good criterion to “motivate and evaluate short-term performance” in all cases? In-class activity 3: Controls at the Bellagio Casino Resort Source case / paper: Case Study: Controls at the Bellagio Casino Resort (textbook p. 134) In-class activity questions / objectives: Focus on the three key roles at three levels of authority in the...

Words: 1085 - Pages: 5

Premium Essay

Airtex Aviation

...CONTROL FALL 2008 Take-Home Case Study: AirTex Aviation Table of contents Table of contents......................................................................................................................2 Executive Summary .................................................................................................................3 Issue statement ........................................................................................................................4 Data analysis............................................................................................................................5 Key Decision Criteria................................................................................................................6 New control system implemented ............................................................................................7 Recommendations .................................................................................................................10 Action and implementation plan .............................................................................................11 2 Executive Summary Two managers recently graduated purchase Air Tex Aviation, a firm on the verge of bankruptcy. In front of the discrepancies of the current control system, Ted Richards and Frank Edwards decide to implement a system which improves transfer pricing, cost allocation and autonomy. Therefore, this case wonders about the difficulties...

Words: 2332 - Pages: 10

Premium Essay

Homework Airtex

...KTH Homework assignment ME2028 Behavioral Management Control Andreas Torbiörnsson 09 How could each of the control problems at Leo´s Four-Plex Theater be solved with the use of Cultural control? Cultural control is a type of control that encourages mutual monitoring1 and it builds a lot upon group pressure. The main idea of cultural control is to get the employees to watch over each other and to create a culture that has certain things that you specifically do or don’t do. It aims to set up shared beliefs and norms in that company, rules of behaving that everyone abides by. The case of Leo’s Four-Plex Theater has a number of control problems that I can identify. They are as follows:   Discrepancies in the cash counts of the ticket booths. Most likely caused by a lack of motivation that leads to employee theft and neglecting of duties. The employees working in the refreshment stand sometimes do not collect cash from customers or doesn’t register the sale on the cash register. This is also most likely caused by a lack of motivation, it can’t be lack of direction since they know what they should do and neither could it be a personal limitation since they know how to operate the machine and how to collect payment. The problem seems to be that they don’t know why they should collect the cash. Test counts reveal that the number of tickets sold or put into the stub box isn’t equal to the amount of customers entering and leaving the theater. This seemed to be caused by three...

Words: 8201 - Pages: 33

Premium Essay

Project Management

...Management control systems rk assignment ME2028 Behavioral Management Control Andreas Torbiörnsson 09 How could each of the control problems at Leo´s Four-Plex Theater be solved with the use of Cultural control? Cultural control is a type of control that encourages mutual monitoring1 and it builds a lot upon group pressure. The main idea of cultural control is to get the employees to watch over each other and to create a culture that has certain things that you specifically do or don’t do. It aims to set up shared beliefs and norms in that company, rules of behaving that everyone abides by. The case of Leo’s Four-Plex Theater has a number of control problems that I can identify. They are as follows:   Discrepancies in the cash counts of the ticket booths. Most likely caused by a lack of motivation that leads to employee theft and neglecting of duties. The employees working in the refreshment stand sometimes do not collect cash from customers or doesn’t register the sale on the cash register. This is also most likely caused by a lack of motivation, it can’t be lack of direction since they know what they should do and neither could it be a personal limitation since they know how to operate the machine and how to collect payment. The problem seems to be that they don’t know why they should collect the cash. Test counts reveal that the number of tickets sold or put into the stub box isn’t equal to the amount of customers entering and leaving the theater. This seemed...

Words: 8320 - Pages: 34

Premium Essay

Managenment

...------------------------------------------------- Course OutlineDepartment of Accounting and FinanceSchool of Business and Economics | ACCT 4250-01 Advanced Management Accounting (3,0,0) MWF 1:30-2:20 PM A&E 208 Instructor: Dr. Laura Jean Kreissl Office: IB 2060 Office Hours: please check office door Email: lkreissl@tru.ca Email is strongly recommended over voicemail as it is checked more frequently Phone/Voice Mail: 250-852-7675 Last Updated: November30, 2015 Calendar Description Building on ACCT 3250: Intermediate Management Accounting, students explore the integrative and interdisciplinary role of management accounting and its contribution to the strategic management process and the provision of quantitative and non-quantitative information for planning, control, and decision making. Topics include management control systems; results controls, action, personnel and cultural controls; control system tightness; control system cost; designing and evaluating management control systems; financial responsibility centers including transfer pricing; planning, and budgeting; incentive systems; financial performance measures; the myopia problem; uncontrollable factors; corporate governance; and ethical issues. | Educational Objectives/Outcomes Upon completing this course, students will be able to: 1. Locate the role of Management Control Systems (MCS) in both strategy and operations. 2. Describe results control and its applications. ...

Words: 7415 - Pages: 30

Premium Essay

Data Costing

...Harvard Business School Publishing Case Map for Horngren, Foster & Datar: Cost Accounting: A Managerial Emphasis, 10th Edition (Prentice Hall) This map was prepared by an experienced editor at HBS Publishing, not by a teaching professor. Faculty at Harvard Business School were not involved in analyzing the textbook or selecting the cases and articles. Every case map provides only a partial list of relevant items from HBS Publishing. To explore alternatives, or for more information on the cases listed below, visit: www.hbsp.harvard.edu/educators Case Title Institution, HBSP Product Number, Length, Teaching Note Geographical and Industry Setting, Company Size, Time Frame Abstract, Key Subjects PART ONE: COST ACCOUNTING FUNDAMENTALS Chapter 1: The Accountant’s Role in the Organization Chapter 2: An Introduction to Cost Terms and Purposes Carver HBSP United States, Consulting Co. #199006 consulting, 10,000 7p employees, 1994 Daniel Dobbins Distillery, Inc. HBSP #189065 7p TN #189172 Tennessee, liquor distillery, 1988 The managing partner of a relatively new consulting firm is concerned because training costs at the firm's new training center are higher than expected. Analysis of actual costs compared to those expected is required. In addition, he is considering capitalizing some training costs for later amortization. A management control system for the center is also a priority. A distiller increases whiskey production and income declines because of accounting...

Words: 6264 - Pages: 26