Group 4 M987Z224 Nat-uma J.

M987Z245 Thidarat P.

M987Z225 Ruechuda K.

M987Z220 Sermsri C.

M987Z216 Phailin T.

M987Z221 Luu Thi HuyenTrang

M987Z208 Martin Firdaus Siringoringo

Content

• Arctic Insulation

• Charley’s Family Steak House

• Shipyard Progres

Arctic Insulation

This case is set in 1980 in a waste paper converting plant in New York City in a

company whose business is tied closely to environmental recycling trends. The subject is

product costing and cost control.

Detail of Arctic Insulation company• Arctic Insulation manufacturers material

used in home insulation. The company mixes scrap paper and fiber to form the insulation material that is bagged, sold and finally blown into home attics.

Source of scrap paperPurchase from public

- Cheaper rates- But expensive in labor

cost: - $19,000/ worker/ year- $9.50/ hour in 1979- 2 ½ bales = 300 pounds/

employee/ hour

- Process is very time consuming- Sorted out paper by type

(coated, newsprint, or fine paper)

- By color (white, colored)- Metal removed (staples, or

grommets)- Cut to standard size- Finally, bound with wire in

baling machine.

Purchase from dealer

- Higher rates - (already sorted, cleaned

and cut to standard sizes)- But less in labor cost

- 16 bales = 300 pounds/ employee/ hour

Table 1All Depots CombinedSummary Cost Report

Formed Bales: Direct Labor Depot Overhead Allocated Division Overhead

Total Increase – 1980 vs. 1979

Purchased Bales: Direct Labor Depot Overhead Division Overhead

Total Increase – 1980 vs. 1979

$

$4,128,0002,765,7603,384,960

$10,278,720

$168,000112,560137,760

$418,320

1979

Cost Per Bale

$3.842.573.15

$9.56

$.60.40.49

$1.49

$

$3,041,2802,493,8502,706,740

$8,241,870

$514,800422,140458,160

$1,395,100

1980

Cost Per Bale

$3.843.153.42

$10.41$.85

$.60.49.53

$1.62$.13

Exhibit 1All Depots Combined

Supplementary Cost ReportDecember 31, 1979 and 1980

Direct Labor

Depot OverheadIndirect LaborRepair LaborRepair MaterialsSuppliesPowerOther (including FICA tax)

TotalAllocated Division Overhead

Total

Formed Bales ProcessedPurchased Bales Processed

Total

$4,296,000

1,875,000101,000

36,00053,00055,000

758,3202,878,3203,522,720

$10,697,040

1,075,000280,000

1,355,000

$3,556,080

2,019,00097,00043,00046,00059,000

651,9902,915,9903,164,900

$9,636,970

792,000858,000

1,650,000

(79.3%)(20.7%)

(100.0%)

(48%)(52%)

(100%)

1979 1980

Exhibit 2Alternative Depot Cost Report as Proposed

By the Division General Manager

Formed Bales: Direct Labor Depot Overhead Allocated Division Overhead

Total Decrease – 1980 vs. 1979

Purchased Bales: Direct Labor Depot Overhead Division Overhead

TotalDecrease – 1980 vs. 1979

$

$4,128,0002,283,5402,794,780

$9,206,320

$168,000594,780727,940

$1,490,720

1979

Cost Per Bale

$3.842.122.60

$8.56

$.602.122.60

$5.32

$

$3,041,2801,399,6751,519,150

$5,960,105

$514,8001,516,3151,645,750

$3,676,865

1980

Cost Per Bale

$3.841.771.92

$7.53$1.03

$.601.771.92

$4.29$1.03

In 1979

In 1980

1,650,000-1,355,000 = 22 %

1,355,000

1,075,000 * 100 = 79.3 %

1,355,000

792,000 * 100 = 48 %

1,650,000

1980 1979

CHARLEY’S FIMILY CHARLEY’S FIMILY STEAK HOUSESTEAK HOUSE

CASE ANALYSISCASE ANALYSIS

WWhere here YYou ou AAlways lways GGet et aa GGreat reat SSteakteak

Content

Charley’sBackground

Case Questions

Operating Statement

Conclusion

Charley’s Background

•Unlike the competition, Mr. Turner had developed an express service for frequent lunch-time customers

• Founded in 1983

•Owned by Charley Turner

•Total 4 units, they were all located in a rapidly-growing mid-size city in Texas

•The goal was to create the best steak house in the city

Charley’s Unit No. 2

• Managed by Alex Pearson who just had been promoted as manager for 1 year.

• Located in an ‘EXCELLENT’ location – next to a small shopping center and close to a large office complex. Moreover, in July 1994, a 100 room budget motel with a pool but no restaurant opened within easy walking distance of the steak house.

• Had seating for about 150 customers and employed 18-20 people.

Charley’s Menu

Top of the line Lobster Dinner $16.99 New York Strip $11.99

Popular Sirloin $8.99 BBQ Ribs $8.99

ValueCountry Fried Steak $6.99

Baked Fish $6.79

Sandwiches & salad bar Chopped Steak $3.99 Side Salad $1.99

Case Questions

1. How did actual sales compare with planned sales?

2. How well were costs and expenses controlled?

1994 Actual 1994 Plan

Gross Sales 1,936,025 1,861,860

Net Sales 1,726,725 1,761,760

Food 1,025,870 1,024,020

Labor 207,000 220,000

Expenses 152,450 148,950

Contribution 341,405 368,790

Advertising 78,625 65,165

Miscellancous 3,320 3,000

Depreciation 24,000 24,000

Insurance 9,780 9,400

Taxes and Licenses 10,940 11,700

Rent (base) 78,000 78,000

Rent (overage) 26,980 23,275

Management 98,000 95,000

Profit 17,760 65,250

Difference

74,165

(35,035)

(1,850)

13,000

(3,500)

( 27,385 )

( 13,460)

(320)

-

(380)

760

-

(3,705)

(3,000)

(47,490)

CHARLEY’S Operating Statement1. How did actual sales compare with planned sales?

+4%

-2 %95%Only 89%

1994 Actual 1994 Plan

Gross Sales 1,936,025 1,861,860

Net Sales 1,726,725 1,761,760

Food 1,025,870 1,024,020

Labor 207,000 220,000

Expenses 152,450 148,950

Contribution 341,405 368,790

Advertising 78,625 65,165

Miscellancous 3,320 3,000

Depreciation 24,000 24,000

Insurance 9,780 9,400

Taxes and Licenses 10,940 11,700

Rent (base) 78,000 78,000

Rent (overage) 26,980 23,275

Management 98,000 95,000

Profit 17,760 65,250

Difference

74,165

(35,035)

(1,850)

13,000

(3,500)

( 27,385 )

( 13,460)

(320)

-

(380)

760

-

(3,705)

(3,000)

(47,490)

CHARLEY’S Operating Statement2. How well were costs and expenses controlled?

4% 3.5%

Gross Sales got increased.

Customer become loyalty

Company reduces using discount coupons

Net Sales and Net Profit will be increased

Conclusion

Shipyard Progres• Established : 1837• Located : Winscotencanal, Groningen in

Netherlands• Products : Shortsea shipping ship, dry-cargo

vessels, ferries, fishing boats etc.

• Employees : 140• Income : € 25 million

Shipyard Progres’s success is largely is due to their great expertise, innovativeness and they specialize in high-quality types of ships.

The shipyards alongside the Winscotencanal have to contend with limitations on the dimensions of the ships to be built. For various reason, the dimensions of ships for the shipyards’ main customers have gradually been increasing more and more. The increasing size of the ships means that some of the ships required by the usual customers can no longer be built by the shipyards alongside the Winscotencanal, or at least cannot be completed there by them.

A temporary and relatively inexpensive solution was the purchase of an existing dry dock. After a detailed analysis of the anticipated revenue and expense resulting from the purchase of the dock, The supervisory board, which had to assess the project, had decided to limit itself to the revenue and expense over the next five years

Table 1 Estimated net cash inflows after the purchase of a dry dock (€ million)

Year net cash inflow (€ million)

2002 1.0

2003 1.4

2004 1.9

2005 1.5

2006 1.2

At the end of 2001, it would be required € 4.1 million for the dock and further investments in Eemshaven harbour and Progres’s cost of capital amount to 11%

Question one Assuming that it is now the end of 2001, please calculate

the internal rate of return on the investment in the dry dock

solutionDefinition of internal rate of return (IRR)

The internal rate of return is the annualized effective compounded return rate that can be earned on the invested capital.

An investment is considered acceptable if its internal rate of return is greater than an established minimum acceptable rate of return.

Lower rate is rate of return that make NPV get nearest to zero, NVP will be positive.

Higher rate is rate of return that make NPV get nearest to zero, NVP will be negative.

• Definition of Net Present Value (NPV) The sum of the Present Values (PVs) of the

individual cash flows.

t is time of the cash flow i is rate of returnRt is the net cash flow

Calculation

First method, manual calculate by using NVP and IRR equation

Second method, using MS Excel and we will got IRR = 20.11%

Question 22.1 calculation of Progres’s safety margin.

Equation

Margin of safety = expected plan – Break even point

- From the case (€ million) MOS = (1 + 1.4 + 1.9 + 1.5+ 1.2) –

4.1 =€ 2.9 million

2.2 Give an example of the decrease in net cash inflow that internal return not lower than Progres’s cost of capital.

-First method, manual calculate-Second method, using MS Excel Year net cash inflow

(€ million)NCF after adjusted

2002 1.0 0.8

2003 1.4 1.2

2004 1.9 1.7

2005 1.5 1.3

2006 1.2 1.0

total 7 6

Balanced ScorecardAn approach to performance measurement that

also focuses on what managers are doing today to create future shareholder value is the Balanced Scorecard, a technique developed by Robert Kaplan, and David Norton.

A Balanced Scorecard is a set of performance measures contructed for four dimensions of performance.

The dimensions are: FinancialCustomer Internal processLearning and growth.

Tying the Balanced Scorecard Measures to the Strategy for Success

Strategy

Financial Perspective

Internal Process Perspective

Learning and Growth

Customer Perspective

Underlying the Balanced Scorecard is an idea “You get what you measure”. If you believe that customer satisfaction is critical for sucess, then you had better measure it so that managers will focus their attention on it. If you believe that reducing cycle tiem is critical for success, then drive your managers to reduce cycle time by evaluating their perfomance in relation to this aspect of perfomance.

Tying the Balanced Scorecard Measures to the Strategy for Success

Examples of measures for the 4 perspective of balanced scorecardMeasures

Financial Is the company achieving its financial goals?

Operating income

Return on assets

Sales growth

Cash flow from operations

Reduction of administrative expense

Customer Is the company meeting customer expectations?

Customer satisfaction

Customer retention

New customer acquisition

Market share

On-time delivery

Time to fill orders

Internal processes

Is the company improving critical interal proceses?

Defect rate

Lead time

Number of suppliers

Material turnover

Percent of practical capacity

Learning and Growth

Is the company improving its ability to innovate?

Amount spent on employee training

Employee satisfaction

Employee retention

Number of vew products

New product sales as a percent of total sales

Keys to a successful Balanced ScorecardTargets: For each measure, there should be a target so

managers know what they are expected to achieve.Initiatives: The company should identify actions that will be

taken to achieve the target.The company must develop a training program initiative to make sure that the employees recieve the right kind of training

Responsibility: A particular employee must be given responsibility and be held accountable for successfully implementing each initiative.

Funding: Initiatives must also be funded appropriately or they will not be successful.

Top management support: It is crucial to have the full support of top management.

Shipyard Progres BSCFinancial:Higher net cash inflowsSales growth by enter new geographical

markets for larger vessels and also maintaining the sales for previous loyal customers

Margin of safety for this project is better than the BEP.

Rate of return is higher (20.11%) than it is expected (11%)

Shipyard Progres BSCCustomer:Maintain good relations with customersFulfill different preferable of customers :

larger ships, but keep on the segment of high quality, flexibility and expertise rather than low prices.

Approach prospective customers, especially outside Europe, for expensive and more profitable types of ships to gain more market share.

Shipyard Progres BSCInternal Process:Increase annual output from five to seven ships to a

total of eight to twelve ships in about three years timeDeveloping an extra production siteGuarantee to get the new ships off the slipway on time.Constantly obtaining sufficient orders for larger shipsEfficiency of internal production and contracting out.Innovate, enhance marketing and constantly improve

production processes

Shipyard Progres BSCLearning and Growth:Training to improve employees expertise

and increase knowledge of building new ships, phasing production processes at two locations and marketing

Discuss periodically and conduct intense communication with every stakeholders, such as production team, head of the office, sales and design department

Relationships between goalsThe plan for investing new dock met with the

customers preferences of larger vessels, and also the expectation of the board to conquer new geographical market outside North-West Europe and outside Europe, thus it will support the company to achieve long term goals and stay healthy

Relationship (cont’d)The desire to improve performance beyond

competitors should be followed by training employees with higher level of expertise, because the company will perform in bigger scope of work as the company invest a new dock to produce larger vessels but to keep the high quality within its production.

The way Progres to extentIn motivating the employees to reach the

company’s goals, is by articulating and transferring vision through the discussion and intense communication with head of each departments with a hope that these leaders will communicate with their sub-ordinate.

Their inventiveness on building a larger ships are met with the needs of the customers.

Way to Extent (cont’d)The decision to invest in a new dock was a

better one, because they also can increase the annual production output, so they can increase the net cash inflows.

In maintaining the level of service in every department, it is really useful to invest also in knowledge for the employees to perform better in a bigger scope of work.

Levers Of Control (Robert Simons)Define as formal information-based routine or procedure

that is used by management to maintain or alter patterns in organizational behavior

Diagnostic control system consist of output measurement, valuation standards, incentive systems and compensation systems in order to optimize outcomes.

Interactive control system is for tracking new ideas, for triggering new learning, and for properly positioning the organization for the future: incorporating process data into management interaction, face to face meetings with employees, challenging data, assumptions and action plans of subordinates.

Diagnostic Control SystemThere should be a specific measurement for

each of performance variables, but not only that, also Progres need a monitoring critical performance in details, so that if the outcome is not satisfying, then Progres can easily evaluate the whole system and find out where the errors occured.

Diagnostic (cont’d)The company should create an incentive

systems to compensate each division performance in order to motivate workers to perform better for the company.

It also help the company to diagnose its performance or the application of the balance scorecard.

Interactive control system at ProgresHigh rank managers should communicate the

core values of the business in a way that employees in their sub-ordinates understand and embrace. So they shouldn’t only discuss between high rank managers but also they need to have intense communication with their sub-ordinates as well.

Interactive (cont’d)In order to raise more ideas from sub

ordinates, high rank managers should create a system to get more inputs from lower subordinates, relate to their job satisfaction and the difficulties to perform in each job description. This system will increase the company performance because subordinates also considered as stakeholders in any decision that company has made.