Group 4

1. 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

2. Content • Arctic Insulation • Charley’s Family Steak House • Shipyard Progres

3. 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.

4. 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.

5. Source of scrap paper • Purchase from dealer • Higher rates • (already sorted, cleaned and cut to standard sizes) • But less in labor cost • 16 bales = 300 pounds/ employee/ hour Purchase 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.

6. 1979 1980 Table 1All Depots CombinedSummary Cost Report $ $4,128,000 2,765,760 3,384,960 $10,278,720 $168,000 112,560 137,760 $418,320 Cost Per Bale $3.84 2.57 3.15 $9.56 $.60 .40 .49 $1.49 $ $3,041,280 2,493,850 2,706,740 $8,241,870 $514,800 422,140 458,160 $1,395,100 Cost Per Bale $3.84 3.15 3.42 $10.41 $.85 $.60 .49 .53 $1.62 $.13 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

7. 1979 1980 Exhibit 1All Depots CombinedSupplementary Cost ReportDecember 31, 1979 and 1980 $4,296,000 1,875,000 101,000 36,000 53,000 55,000 758,320 2,878,320 3,522,720 $10,697,040 1,075,000 280,000 1,355,000 $3,556,080 2,019,000 97,000 43,000 46,000 59,000 651,990 2,915,990 3,164,900 $9,636,970 792,000 858,000 1,650,000 Direct Labor Depot Overhead Indirect Labor Repair Labor Repair Materials Supplies Power Other (including FICA tax) Total Allocated Division Overhead Total Formed Bales Processed Purchased Bales Processed Total (79.3%) (20.7%) (100.0%) (48%) (52%) (100%)

8. 1979 1980 Exhibit 2Alternative Depot Cost Report as ProposedBy the Division General Manager $ $4,128,000 2,283,540 2,794,780 $9,206,320 $168,000 594,780 727,940 $1,490,720 Cost Per Bale $3.84 2.12 2.60 $8.56 $.60 2.12 2.60 $5.32 $ $3,041,280 1,399,675 1,519,150 $5,960,105 $514,800 1,516,315 1,645,750 $3,676,865 Cost Per Bale $3.84 1.77 1.92 $7.53 $1.03 $.60 1.77 1.92 $4.29 $1.03 Formed Bales: Direct Labor Depot Overhead Allocated Division Overhead Total Decrease – 1980 vs. 1979 Purchased Bales: Direct Labor Depot Overhead Division Overhead Total Decrease – 1980 vs. 1979

9. In 1979

10. In 1980

11. 1980 1979 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

12. Where You Always Get aGreat Steak CASE ANALYSIS CHARLEY’S FIMILY STEAK HOUSE

13. Content Charley’s Background Case Questions Operating Statement Conclusion

14. Charley’s Background • 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 • Unlike the competition, Mr. Turner had developed an express service for frequent lunch-time customers

15. Charley’s Unit No. 2 • Managed by Alex Pearson who just had been promoted as manager for 1 year. • Had seating for about 150 customers and employed 18-20 people. • 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.

16. Charley’s Menu Top of the line Lobster Dinner $16.99 New York Strip $11.99 ValueCountry Fried Steak $6.99 Baked Fish $6.79 Popular Sirloin $8.99 BBQ Ribs $8.99 Sandwiches & salad bar Chopped Steak $3.99Side Salad $1.99

17. Case Questions • How did actual sales compare with planned sales? 2. How well were costs and expenses controlled?

18. CHARLEY’S Operating Statement 1. How did actual sales compare with planned sales? +4% Only 89% 95% -2 %

19. CHARLEY’S Operating Statement 2. How well were costs and expenses controlled? 4% 3.5%

20. Conclusion Company reduces using discount coupons Gross Sales got increased. Net Sales and Net Profit will be increased Customer become loyalty

21. 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.

22. 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.

23. 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

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

25. 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

26. solution • Definition 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.

27. 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 return Rt is the net cash flow

28. Calculation • First method, manual calculate by using NVP and IRR equation • Second method, using MS Excel and we will got IRR = 20.11%

29. Question 2 2.1 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

30. 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

31. Balanced Scorecard • An 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: • Financial • Customer • Internal process • Learning and growth.

32. Tying the Balanced Scorecard Measures to the Strategy for Success Financial Perspective Strategy Internal Process Perspective Customer Perspective Learning and Growth

33. Tying the Balanced Scorecard Measures to the Strategy for Success • 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.

34. Examples of measures for the 4 perspective of balanced scorecard

35. Keys to a successful Balanced Scorecard • Targets: 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.

37. Shipyard Progres BSC Financial: • Higher net cash inflows • Sales 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%)

38. Shipyard Progres BSC Customer: • Maintain good relations with customers • Fulfill 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.

39. Shipyard Progres BSC Internal Process: • Increase annual output from five to seven ships to a total of eight to twelve ships in about three years time • Developing an extra production site • Guarantee to get the new ships off the slipway on time. • Constantly obtaining sufficient orders for larger ships • Efficiency of internal production and contracting out. • Innovate, enhance marketing and constantly improve production processes

40. Shipyard Progres BSC Learning 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

41. Relationships between goals • The 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

42. 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.

43. The way Progres to extent • In 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.

44. 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.

45. 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.

46. Diagnostic Control System • There 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.

47. 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.

48. Interactive control system at Progres • High 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.

49. 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.