(Open-book management) Kathy Townsend, Technical Instruments Division manager of Bigelow 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.

Gaiy Robinson, the production supervisor of the finishing department in Townsend’s division, was surprised to receive the following note in his after¬ noon mail.

As corporate controller of Bigelow Electronics, you are surprised when Robinson calls your office and asks to meet with your staff to discuss the fi¬ nancial 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 go¬ ing to write to Townsend. Before any decisions are implemented, you real¬ ize that she can use your expertise to design and implement open-book management practices. As you write the memo, you know that your sugges¬ tions must be specific, positive, and informative.

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Dear Gary: 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 ef ficient. By early in the coming year, I intend to put in place an incentive pay system that will replace your current salary. Accordingly, your in- come 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 bave circled below. Please give me a call if you have any ques- tions. Regards, KT FINISHING DEPARTMENT COST ANALYSIS This Quarter This Quarter Last Year Last Quarter Direct material $ 95,000 $ 75,000 Direct labor 925,000 840,000 $ 90,000 940,000 Material-based overhead 27,000 22.000 23,000 Labor-based overhead 413,000 382,700 396,500 Machine-based overhead 657,000 589,000 617,000