...San Francisco Bay (SFB) Consulting Simulation Requirements 1. Evaluate SFB’s current approach of treating Computer Services as a modified profit-center. Please refer to the Appendix below that I have created for details on how monthly rental rates and usage charges are developed by Computer Services and then charged to Consulting Groups. San Francisco Bay Consulting practical application of economic theory to business problems SF bays practice was divided into two groups – Business Consulting and Litigation Support (both relied heavily on quantitative economic analysis) Computer services: the firm evaluated it as a modified profit center, which they called a “breakeven” center. Budget included all expenses that CS expected to incur for the year, including salaries, supplies, purchased software, and hardware depreciation. Revenue included expectation for internal billings from CS to groups for hardware “rented” by the consulting groups, and for usage charges levied on the groups for disk storage, laptops, and SUN usage. As long as the budget showed a projected break-even position at the end of the year, and the internal billings were realistic it was approved. CS’s expenses could be over budget as long as the internal billings were above expectations by the same amount and the break-even position was maintained Computer service actual revenue was determined by how much the groups used, given CSs billing rates Computer services performance assessment was based on...
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...growth. The company is striving hard to achieve cost effectiveness and achieve high level of quality. Now, the goals of the company’s marketing organization and company’s 25 managers of manufacturing plant are different. The marketing division is treated as a “Revenue Centre” so the goal of the company’s marketing organization is to maximize revenue and sell what is produced. They are evaluated on the basis of meeting the set sale unit and sales dollar targets. Also, they are responsible for making demand forecasts which are used to decide the production levels of each plant. Whereas, the manufacturing plant have the goal to just meet the budget figure and fulfill the quota allocated to each plant. Since they are considered as an expense center and there is no immediate monetary reward to compensate for increase in responsibilities or requirements, they are not concerned to achieve higher efficiency and thus, want to exceed the targets. 2.Evaluate the current management planning and control system for the manufacturing plants and the marketing departments. What are the strengths and weaknesses? Ans. By 1989, the company was one of the world’s largest cloth manufacturer. Following are the Strengths: a)The company has been profitable for a long time. b)The company has 25 manufacturing units of its own and 20 independent contractors producing efficiently and reliably for them. c)They have developed a learning curve to develop the production’s standard hour. d)1-to-5...
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...Bridgestone Health Center: Cost-Vume-Profit(CVP) Analysis for Planning and Control A business Case Presented to the Accountancy Department De La Salle University In partial fulfillment Of the course requirements In MODMGT1 Submitted to: Ms. Katherine Chua Submitted by: Ferrer, Jan Alyssa Dennise Madamba, Ann Tan, Baron Vergara, Maria FRancesca In the vast changing business environment, organizations have kept a single grip trying to cope up with the differing demands required from them. Stability has been the rising issue; hence business continuance is put to test. Questions such as, “will my revenue match up with my cost?” or “Do my business profit from this?” These issues do not only involve profit generating entities but non-profit organizations as well. It is a common mistake that non-profit organizations are supposedly to earn just enough to compensate for the expenses incurred. But, truth is, non-p[profit organizations, need as surplus to survive the demands of a business. This would equip these nonprofit organizations from future contingencies and problems. In the business case provided, Bridgestone Behavioral Health Center, is a non-profit rehabilitation hospital. The said entity caters patients suffering from drug or addiction. The entity has a varied services offering to both checked-in patients and Out-patients. The said services are as follow: Patient Assessment, Lab Urinalysis, Case , Group Counseling, Individual Counseling, Crisis, Intensive Medical Somatic...
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...and, secondly, actual results are compared with budgeted ones. Any difference is made responsibility of the key individuals who were involved in (i) setting standards, (ii) given necessary resources and (iii) powers to use them. In order to streamline the process, the entire organization is broken into various types of centers mainly cost centre, revenue centre, profit center and investment centre. The organizational budget is divided on these lines and passed on to the concerned managers. Actual results are collected and displayed in the same form for comparison. Difference, if any, are highlighted and brought to the notice of the management. This process is called Responsibility Accounting. RESPONSIBILITY CENTRE A FORMAL DEFINITION OF RESPONSIBILITY ACCOUNTING Responsibility accounting involves the creation of responsibility centres. A responsibility centre may be defined as an organization unit for whose performance a manager is held accountable. Responsibility accounting enables accountability for financial results and outcomes to be allocated to individuals throughout the organization. The objective is to measure the result of each responsibility center. It involves accumulating costs and revenues for each responsibility centre so that deviation from performance target (typically the budget) can be attributed to the individual who is accountable for the responsibility centre. (Colin Drury, Management and Cost Accounting, sixth edition) Chapter 12 I. CHARACTERISTICS...
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...www.StudentWhiz.com 1. Why are budgets useful in the planning process? • They enable the budget committee to earn their paycheck. • They provide management with information about the company's past performance. • They help communicate goals and provide a basis for evaluation. • They guarantee the company will be profitable if it meets its objectives. 2. A common starting point in the budgeting process is • a clean slate, with no expectations. • expected future net income. • past performance. • to motivate the sales force. Want more details? Download now ACC 561 Week 5 Quiz 3. Which of the following statements about budget acceptance in an organization is true? • The most widely accepted budget by the organization is the one prepared by top management. • Budgets are hardly ever accepted by anyone except top management. • The most widely accepted budget by the organization is the one prepared by the department heads. • Budgets have a greater chance of acceptance if all levels of management have provided input into the budgeting process. 4. What is budgetary control? • The process of providing information on budget differences to lower level managers • Another name for a flexible budget • The degree to which the CFO controls the budget • The use of budgets in controlling operations Quiz Answers just a click away ACC 561 Week 1 Quiz 5. The comparison of differences between actual and planned results • is done by the external auditors. • appears...
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...management is adding to the shareholders value by earning extra for them. On the contrary, if the WACC is higher than the corporate earning rate, the firm’s operations have eroded the existing wealth of its equity shareholders. In operational terms, the method attempts to measure economic value added (or destroyed) for equity shareholders, by the firm’s operations, in a given year. Since WACC takes care of the financial costs of all sources of providers of invested funds in a corporate enterprise, it is imperative that operating profits after taxes (and not net profits after taxes) should be considered to measure EVA. The accounting profits after taxes, as reported by the income statement, need adjustments for interest costs. The profit should be the net operating profit after taxes and the cost of funds will be the product of the total capital supplied (including retained earnings) and WACC EVA= [Net operating profits after taxes – [Total Capital * WACC] Example; Following is the condensed income statement of a firm for the current year; Particulars Amt (in lakhs) Sales Revenue 500 Less: Operating costs 300 Less: Interest costs 12 Earnings before taxes 188 Less: Taxes (0.40) 75.2 Earnings after taxes 112.8...
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...hospitals owned and operated by Health Services of America, a for-profit, publicly owned company. Although there are nine other acute care hospitals serving the same general population, TMH historically has been highly profitable because of its well-appointed facilities, fine medical staff, and reputation for quality care. In addition to inpatient services, TMH operates an emergency department within the hospital complex, no appointment necessary, and charge between $ 60 and $ 200 per procedure. Originally, (10 years ago) there were 15 acute care in the city, but none of them were making money. Now, only 11 are left, one of them located about two miles from the hospital. Current TMH operational situation: The center is handling a patient load of 45 visits a day, though it has the physical capacity to handle up to 85 visits a day and facing continues profit loss since 2013. CEO Financial concern: Brandon Harley, TMH chief executive officer, expressed his concern about the financial situation and proposed 3 outcomes for the center: 1) It could be closed; this will result in loss $ 37,500 lease cancellation penalty as per contract 2) It could continue to operate as its; with 45 patients per day and loss of $ 3,173 3) It could continue to operate, accompanied by the expanded marketing effort; with incremental costs (variable, semifixed salaries, and fixed costs). * In reference to the TMH care center historical financial data, I would like to build on the data...
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...Question 1: Assuming Bachand’s proposed system is accepted; compare the profitability of a franchised PK store to a corporate-owned store. Answer: In my point of view the proposed system of Bachand seems to be more profitable for PK in contrast to the current franchise system. I would like to quote following reasons in favor of my conception: Incentive system: In the franchise system franchisee was to be had a definite salary of $50000 but he had full liberty to draw as large salary as he wants contingent to the growth of equity by means of profitable operations and diminishing of debt. So, PK was to pay the salary on the basis of the growth of equity. But in the proposed system by Bachand the salary was made fixed with additional... ------------------------------------------------- 1. Situation Background: Hawthorne operated several different retail divisions in petroleum, clothing, financial services and general merchandise. One of the products Hawthorne’s general merchandise stores carried was automotive products including replacement parts. In the mid-1990s, Hawthorne realized that its general merchandise stores were not addressing the needs of two key customer segments in the automotive parts industry: serious “do-it-yourself” consumers and commercial consumers. Hawthorne decided to replicate stand-alone auto stores (such as, AutoZone, Pep Boys) business model in Canada under the Part King name. Part King, Inc opened its first store in Guelph, Ontario in...
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...Bike(X5) courses reach the maximum limitation. The result does not surprise us at all and it goes just like what we thought at the beginning. Because these three are the most profitable courses. We should have them as many as possible as long as they are under the resources constraints. The bottom table shows the status of the resources under the optimal solution. In order to maximum the profit, we need to monitor the resources. Some of them indicating binding and zero slack which means that if we change the value of them, the optimal solution will have to change. It’s worth to mention that Demand is not used up in this optimal solution. The information tells us that the Sporting Center still have rooms to be improved to attract more customers . For example, the Sporting Center can hire more Teaching Assistants or increase their electricity expense budget. Except the Answer Report, we have run the Sensitivity Report which can explain the data accuracy and robustness. This report tells us that the optimal solution is pretty robustness. Because the range we can change the profit margin...
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...dealer and factory-authorized service center implemented a new control system. The company was divided into five decentralized profit centers---New Car Sales, Used Car Sales, Service, Parts and Body shop. The bonus of each department manager is based on the departmental gross profit. The analysis using the Porter’s Five Forces Model indicates that the average profitability of vehicle sales industry is low. There are more and more educated customers and increasing number of industry new entrants. Also the industry itself is characterized by high inventories and aggressive discounting. The Major Crisis Facing the Company Recently, one vehicle transaction heighted problems within the new structure and sparked frictions among different profit centers. Although each profit center should maximized its profits, they must not negatively affect other profit centers. Mangers of those profit centers disagreed on the current transfer price among departments and profit and cost allocations. The analysis of exhibit 3 shows that the new car sales department generates the highest sales and gross profit. However, parts department has the highest profit before common expense. Generally speaking, The profit margin is highest in parts department with a profit margin of 12.56% and then followed by body department (profit margin 9.09%) and service department ( profit margin 7.44%). At the same time, the new and used car profit centers only make profit margins of .15% and .45% respectively...
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... | | | | | | | | Problem No:1 | | | | | | | | You are furnished with the following data relating to Arvind Ltd.. | | | Investment center | cash&bank | Inventories | Receivables | FA | Budgeted profit | | | | A | 10 | 20 | 30 | 90 | 30 | | | | B | 15 | 20 | 25 | 65 | 12.5 | | | | C | 5 | 10 | 20 | 50 | 8.5 | | | | | | | | | | | | | The corporate cost of capital relating to money invested in receivables and debtors | is 6% post tax. The rate of return required by the company for investing in fixed asets | is 9% post tax. Calculate the ROI and EVA from the above data and show the difference | between the two methods of investment centre evaluation | | | | | | | | | | | | | solution: | | | | | | | | | a)calculation of ROI | | | | | | | | Investment center | cash&bank | Inventories | Receivables | FA | Total investment | Budgeted profit | ROI% | | A | 10 | 20 | 30 | 90 | 150 | 30 | 20 | | B | 15 | 20 | 25 | 65 | 125 | 12.5 | 10 | | C | 5 | 10 | 20 | 50 | 85 | 8.5 | 10 | | | | | | | 360 | 51 | 14.16 | | | | | | | | | | | ROI=Profit/Investment*100 | | | | | | | | | | | | | | | | | | | | | | | | | b)calculation of EVA | | | | | | | Investment center | Budgeted profit | CA | cost of capital | Required earnings | FA | Required rate of earnings | Required earnings | | A | 30 | 60 | 6 | 3.6 | 90 | 9 | 8.1 | | B | 12...
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...Financial Responsibility Centers Financial Result Control System Financial Result Control System results are defined in monetary terms, most commonly in terms of accounting measures such as revenues, costs, profits, and returns. Advantages of Financial Result Control System Financial objectives are paramount in for-profit firms. Financial measures provide a “summary” measure of performance by aggregating the effects of a broad range of operating initiatives across a possibly broad range of markets, products, or activities into a single or a few measures. Most financial measures are relatively precise and objective. The cost of implementing financial result controls is often small relative to that of other forms of management control. Types of financial responsibility centers Investment centers Investment centers are responsibility centers whose managers are held accountable for the accounting returns on the investment made to generate those returns. Profit centers Profit centers are responsibility centers whose managers are held accountable for profit which is a measure of the difference between the revenues generated and the costs of generating those revenues. The goal for not-for-profit organization is to break even, or perhaps even incur limited losses. However, for-profit entities is normally not considered desirable to generate higher profits than those budgeted. Two limited forms: When sales-focused entities are made into profit centers by charging the...
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...Introduction Big Bend Medical Center is a non-profit organization that provides full service acute care. The bulk of the facilities are consequently devoted to inpatient care, with 100,000 square feet of the hospital dedicated to outpatient services. This area currently has two primary uses: the Outpatient Center (OC), which occupies 80,000 square feet, and the Dialysis Center (DC), which uses the remaining 20,000 square feet. Due to recent growth, the OC needs 25% more space. As the OC needs a closer physical presence to all other departments in the hospital, it was decided that the full 100,000 square feet currently occupied by the OC and the DC should be solely dedicated to the OC and that the DC should relocate to a new 20,000 square foot facility to be constructed separate from the hospital building. In addition to the move, a change to the facilities cost allocation scheme has been proposed. Under the new cost allocation scheme, DC would no longer be profitable. Big Bend Medical Center must come with an alternative cost allocation structure to allow DC to be sustainable in long term while allowing the OC to expand its existing footprint. Question 1: Is it ”fair” for the Dialysis Center to suffer in profitability, and hence for the department head to possibly lose his bonus, just because the Outpatient Clinic needs additional space? If the proposed allocation method (under which the DC would bear the full cost to construct and relocate to the new 20,000 square foot...
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...MIDTERM ACCT 4625 2. a. All three of Trump Companies Subsidiaries are Profit centers because they each have control over their costs and profits. b. For the $50,000 bonuses, the Trump Company decided that it would be in the company’s best interest to divide it up based on before tax profit for each subsidiary. This way each subsidiary will have an incentive to gain more profit for the company. 2013 New York London Vulcan City Sales (Units) 10,000 20,000 25,000 Selling Price $14.00 $11.00 $9.00 Cost of Production $4.00 $6.00 $7.00 Capacity 20,000 30,000 35,000 Tax Rate 20% 10% 35% EBT $100,000.00 $100,000.00 $50,000.00 Profit after Tax $80,000.00 $90,000.00 $32,500.00 % of EBT 40% 40% 20% Bonuse (50K) $20,000.00 $20,000.00 $10,000.00 c) Instead of manufacturing the 8000 calculators promised to the Vulcan Government in house, Vulcan City will contract the work out to another subsidiary: the New York Division. The New York Division will sell the additional 8000 calculators to Vulcan City at the cost of $8.75 (since there is no transfer maximum listed we are assuming we can charge the full amount) for every calculator. The reasons for this arrangement are: 1. The New York has the available idle capacity, so they aren’t being hurt by selling them at a lower than normal selling price. 2. By this arrangement Trump Company will save on taxes by only paying 20% on $70,000 of the calculators instead of Vulcan City paying 35% on $70,000. Creating tax savings...
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...report most follow specific guidelines in order to be consistent and it focuses on accuracy. Management accounting in the other hand is the business tool that provides financial and nonfinancial information to internal members of the business such as managers and employees. Management accounting helps internal members of the company with profit planning and budgets. It focuses in making current and future decisions in order to better the company. The reports provided by management accounting are prepared when needed and may not be required in a regular basis. Management accounting helps the company’s Chief Executive Officer (CEO) with controlling the company’s performance by measuring outputs produced and their efficiency. It helps by controlling expenses and costs and by organizing resources that can help achieving the company’s goals. Management accounting also analyzes the quality and cycle time of the company’s tasks and chooses the target set of customers (Atkinson, Kaplan, Matsumura, & Young). Management accounting drives the company’s objectives and strategies while measuring profitability and effectiveness. Responsibility centers help with establishing...
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