Case : Grove City Broadcasting

1. Strategic Cost Management Cost Allocation & Organization Behavior Case : Grove City Broadcasting เสนอ ผศ.สมชาย ศุภธาดา โดย กลุ่มที่ 1 & 11

2. รายชื่อผู้ร่วมงาน • นายทัดพันธุ์ บุณยรัตพันธุ์ 4502010020 • นางสาวสมจิตต์ พัฒนาการวิจิตร 4502010160 • นายภาคภูมิ ศรีชำนิ 4502010244 • นายกำพล แจ้งสุทธิวรวัฒน์ 4502010376 • นางสาวสุวรรณี รุ่งเรืองฤทธิ์ 4502010392 • นายกฤษณะ เทศประสิทธิ์ 4502010400 • นางสาวศตพร วานิชทวีวัฒน์ 4502010457 • นายวรเทพ ปัญญายงค์ 4502010541 • นายวสุ ปิยวนิชพงษ์ 4502010590 • นายอนันต์ เอกวงศ์วิริยะ 4502010616 • นางสาววราภรณ์ เจียมเจริญ 4502010657 • นายศราวิทย์ กุลกฤตยาวณิชย์ 4502010723

3. Grove City Broadcasting • Grove City Broadcasting owns and operates - Radio station - Television station in Grove City. • Both radio station and television station are - located in the same building - operated as a separate profit centers with separate managers.

4. Grove City Broadcasting • Managers of both stations are evaluted performance based on • station profit • Revenue of Both stations comes from • sale of advertising spots ( The price be charged at a standard 30-second ads. based on audience size. ) • Expected audience size at a 30-second ads. - Radio Station : 20,000 listener

5. Grove City Broadcasting Exhibit 1 Total revenue of ads. Spots before allocated Sport Wire Service cost • Both radio station and television station are • Subscribing General News Wire

6. Grove City Broadcasting • Sports Wireis more comprehensive and contains more sports stories than the current general news wires • Sports Wire proposes its service to Grove City Broadcasting • Subscribing one location $ 30,000 / month • Subscribing two locations $ 35,000 / month with an extra computer terminal and two users can be on the system at the same time • Managers believed that if use Sports wire can increase audience • Radio station 1,500 listeners/ad • TV station 500 viewers /ad

7. Q & A for Grove City Broadcasting A) If the two managers did not cooperate but rather each made a decision assuming he or she was the sole user of the system, would either buy Sports Wire? Support your answer with detailed calculations.

8. Q & A for Grove City Broadcasting Exhibit 2 Total revenue increase from using Sport Wire Services • Assumed still using General News Wire

9. Q & A for Grove City Broadcasting • Both stations revenue increase < $ 30,000 So both stations will not buy Sports Wire services solely.

10. Q & A for Grove City Broadcasting B) If the owner of Grove city Broadcasting had all the facts available to the two managers, would the owner buy Sports Wire ? • The owner of Grove City Broadcasting will buy Sports Wire

11. Q & A for Grove City Broadcasting C) The costs of the current wire services that Grove City purchase are allocated to the two stations based on the number of stories aired each month from the wire services. The owner of Grove City Broadcasting decides to purchase Sport Wire for Both stations and to allocate its $ 35,000 cost based on the number of Sports Wire stories aired each month. During the first month, the radio station use 826 Sports Wire stories and TV use 574. Allocate the Sports Wire cost to the radio and TV stations. D) What is the allocated cost per Sports Wire story in the first month ?

12. Q & A for Grove City Broadcasting Exhibit 3 Cost Allocation for Both Stations (using Sport Wire Service) • Allocated cost per Sports Wire story = $ 25/story ( 35,000 /1,400 )

13. Q & A for Grove City Broadcasting E) Given the allocation of the Sports Wire cost, what behaviors can you predict from the radio and TV station managers ? Exhibit 4 Return after allocation of the Sport Wire cost

14. Q & A for Grove City Broadcasting • Using Sports Wire Service ; - Radio station can increase revenue much more than TV station. ( net profit for Radio = $ 5,975/Mth ) • Radio station manager would bring many Sports Wire stories on air to reduce the allocation cost/story. • TV station manager would bring less Sports Wire stories on aired since the allocation cost may larger than its revenue. ( also to reduce cost till to the same revenue value or more if possible )

15. Q & A for Grove City Broadcasting F) Design an alternative allocation scheme that avoids the problems identified in (E). Discuss the advantages and disadvantages of your allocation scheme. • Allocate cost according to their revenue increase by using revenue increase ratio.

16. Q & A for Grove City Broadcasting Exhibit 5 Cost allocation scheme according to their revenue increase by using increased revenue ratio

17. Q & A for Grove City Broadcasting Advantage - Allocation based on increased revenue is fair to both parties - Both Radio & TV station have revenue increased - As profit center, the managers are satisfied Disadvantage - Distort motivation & improvement - Distort taxation plan to make one lose to exempt tax or to make the one which has less tax rate, to have more revenue.

18. Q & A for Grove City Broadcasting Exhibit 4 Shown Taxation Plan for Both Stations allocated by using increased revenue ratio

19. Grove City Broadcasting THANK YOU