Group 4
M987Z224
M987Z245
M987Z225
M987Z220
M987Z216
M987Z221
M987Z208
Nat-uma J.
Thidarat P.
Ruechuda K.
Sermsri C.
Phailin T.
Luu Thi HuyenTrang
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 paper
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.
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 1
All Depots Combined
Summary Cost Report
1979
$
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
1980
Cost Per Bale
$
Cost Per Bale
$4,128,000
2,765,760
3,384,960
$10,278,720
$3.84
2.57
3.15
$9.56
$3,041,280
2,493,850
2,706,740
$8,241,870
$3.84
3.15
3.42
$10.41
$.85
$168,000
112,560
137,760
$418,320
$.60
.40
.49
$1.49
$514,800
422,140
458,160
$1,395,100
$.60
.49
.53
$1.62
$.13
Exhibit 1
All Depots Combined
Supplementary Cost Report
December 31, 1979 and 1980
1979
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
1980
$4,296,000
$3,556,080
1,875,000
101,000
36,000
53,000
55,000
758,320
2,878,320
3,522,720
$10,697,040
2,019,000
97,000
43,000
46,000
59,000
651,990
2,915,990
3,164,900
$9,636,970
1,075,000 (79.3%)
280,000 (20.7%)
1,355,000 (100.0%)
792,000
858,000
1,650,000
(48%)
(52%)
(100%)
Exhibit 2
Alternative Depot Cost Report as Proposed
By the Division General Manager
1979
$
Formed Bales:
Direct Labor
Depot Overhead
Allocated Division Overhead
Total
Decrease – 1980 vs. 1979
1980
Cost Per Bale
$
Cost Per Bale
$4,128,000
2,283,540
2,794,780
$9,206,320
$3.84
2.12
2.60
$8.56
$3,041,280
1,399,675
1,519,150
$5,960,105
$3.84
1.77
1.92
$7.53
$1.03
Purchased Bales:
Direct Labor
$168,000
Depot Overhead
594,780
Division Overhead
727,940
Total
$1,490,720
Decrease – 1980 vs. 1979
$.60
2.12
2.60
$5.32
$514,800
1,516,315
1,645,750
$3,676,865
$.60
1.77
1.92
$4.29
$1.03
In 1979
Formed Bales
Purchased
Bales
Total Direct
Labor Cost
$4,128,000
$168,000
$4,296,000
Total Depot
Overhead
$2,283,540
$594,780
$2,878,320
$2,794,780
$727,940
Total Allocated
Division
Overhead
$3,522,720
In 1980
Formed
Bales
Purchased
Bales
Total Direct
Labor Cost
$3,041,280
$514,800
$3,556,080
Total Depot
Overhead
$1,399,675
$1,516,315
$2,915,990
$1,519,150
$1,645,750
Total Allocated
Division
Overhead
$3,164,900
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
Where You Always Get a Great Steak
CASE ANALYSIS
CHARLEY’S FIMILY
STEAK HOUSE
Content
Charley’s
Background
Case
Questions
Operating
Statement
Conclusion
Charley’s Background
• Founded in 1983
•Owned by Charley Turner
•Total 4 units, they were all located in a rapidlygrowing 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
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.
Charley’s Menu
Top of the line
Lobster Dinner
New York Strip
Popular
Sirloin
BBQ Ribs
$16.99
$11.99
$8.99
$8.99
Value
Country 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?
CHARLEY’S Operating Statement
1. How did actual sales compare with planned sales?
Gross Sales
Only 89%
1994 Actual
1994 Plan
1,936,025
1,861,860
95%
+4%
-2 %
74,165
Net Sales
1,726,725
Food
1,025,870
1,024,020
(1,850)
Labor
207,000
220,000
13,000
Expenses
152,450
148,950
(3,500)
341,405
368,790
( 27,385 )
78,625
65,165
( 13,460)
3,320
3,000
(320)
24,000
24,000
-
9,780
9,400
(380)
Taxes and Licenses
10,940
11,700
760
Rent (base)
78,000
78,000
-
Rent (overage)
26,980
23,275
(3,705)
Management
98,000
95,000
(3,000)
17,760
65,250
(47,490)
Contribution
Advertising
Miscellancous
Depreciation
Insurance
Profit
1,761,760
Difference
(35,035)
CHARLEY’S Operating Statement
2. How well were costs and expenses controlled?
1994 Actual
1994 Plan
Difference
Gross Sales
1,936,025
1,861,860
74,165
Net Sales
1,726,725
1,761,760
(35,035)
Food
1,025,870
1,024,020
(1,850)
Labor
207,000
220,000
13,000
Expenses
152,450
148,950
(3,500)
341,405
368,790
( 27,385 )
65,165
( 13,460)
3,320
3,000
(320)
24,000
24,000
-
9,780
9,400
(380)
Taxes and Licenses
10,940
11,700
760
Rent (base)
78,000
78,000
-
Rent (overage)
26,980
23,275
(3,705)
Management
98,000
95,000
(3,000)
17,760
65,250
(47,490)
Contribution
Advertising
Miscellancous
Depreciation
Insurance
Profit
4%
78,625
3.5%
Conclusion
Gross Sales
got
increased.
Customer become
loyalty
Company reduces using
discount coupons
Net Sales and Net Profit
will be increased
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
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.
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.
An investment is considered acceptable if its internal rate of return
is greater than an established minimum acceptable rate of
return.
• 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
Calculation
 First method, manual calculate by using NVP and IRR
equation
 Second method, using MS Excel and we will got IRR =
20.11%
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
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 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.
Tying the Balanced Scorecard Measures to the
Strategy for Success
Financial Perspective
Customer Perspective
Strategy
Learning and Growth
Internal Process
Perspective
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.
Examples of measures for the 4 perspective of balanced scorecard
Measures
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
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.
Financial:
Customer:
Increasing revenues (indicators yearly
increasing net cash inflows)
Customer satisfaction (high quality,
flexibility, expertise rather than low
prices)
Rate of return (target 11%, but it is
20.11%).
Margin of safety (BEP is €4.1 million,
but MOS is €2.9 million over BEP)
Bigger market share (good relation
with loyal customer and attract new
consumer by providing bigger vessels)
BSC
Internal Processes:
Learning and Growth:
Production capacity (prior was 5-7,
now 8-12 ships/3 years by developing
an extra production site)
Finishing production on time
High skill employees (increase
knowledge of building new ships,
phasing production processes at two
locations and marketing)
Efficiency of internal production and
contracting out (lower production
cost)
Intense communication (discussion
between high rank managers and
between leaders-employees)
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%)
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.
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
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
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
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 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.
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 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.
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 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.
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.