Laura Johnson, Technical Instruments Division manager of Worldwide Electronics, attended a 30-minute seminar on open-book management recently. As a result of the seminar, she decided to implement some open-book management practices in her division. She began the process today when she received the latest quarterly results for her division.

Joey Thompson, the production supervisor of the finishing department in Johnson's division, was surprised to receive the following note in his afternoon mail.

Dear Joey:
I've just finished reviewing the financial results for the last quarter. I am including some data from the financial reports below. Because our firm must identify ways to become more cost competitive, I intend to share data from the financial reports with you each quarter. I want you to use the information as the basis for making your department more efficient. By early in the coming year, I intend to put in place an incentive pay system that will replace your current salary. Accordingly, your income in the future will depend on your ability to manage the costs of your department.
To begin reducing costs, I suggest you concentrate on the cost items which I have circled below. Please give me a call if you have any questions.
Regards,
LJ

As corporate controller of Worldwide Electronics, you are surprised when Joey Thompson calls your office and asks to meet with your staff to discuss the financial report and to discuss the meaning of "overhead." As you consider how to deal with him, you begin to contemplate the memo that you are going to write to Laura Johnson.
Before any decisions are implemented, you realize that she can use your expertise to design and implement open-book management practices. As you write the memo, you know that your suggestions must be specific, positive, and informative. Write the memo toJohnson.

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FINISHING DEPARTMENT COST ANALYSIS Direct material Direct labor Material-based overhead Labor-based overhead Machine-based overhead This Quarter 95,000 925,000 27,000 This Quarter Last Year s 75,000 840,000 22,000 382,700 589,000 Last Quarter 90,000 940,000 23,000 396,500 617,000 570