Bank Services Corporation (BSC) Rocky Mountain Region Financial Performance Check Processing Centers Total Billings Great Falls Clayton Sales $50,000,000 $20,000,000 $18,000,000 $12,000,000 Operating expenses: Direct labor 32,000,000 12,500,000 11,000,000 8,500,000 Variable overhead 850,000 350,000 310,000 190,000 Equipment depreciation 3,900,000 1,300,000 1,400,000 1,200,000 Facility expense" 2,800,000 900,000 800,000 1,100,000 Local administrative expense 450,000 140,000 160,000 150,000 Regional administrative expense 1,500,000 600,000 540,000 360,000 Corporate administrative expenses 4,750,000 1,900,000 1,710,000 1,140,000 Total operating expense 46,250,000 17,690,000 15,920,000 12,640,000 Net operating income (loss) $ 3,750,000 $ 2,310,000 $ 2,080,000 $ (640,000) *Includes building rental expense for the Billings and Great Falls locations and building depreciation for the Clayton location Local administrative expenses are the administrative expenses incurred at the check processing centers. Regional administrative expenses are allocated to the check processing centers based on sales. Corporate administrative expenses are charged to segments of the company such as the Rocky Mountain Region and the check processing centers at the rate of 9.5% ofRomeros: Littlebear: Romeros: Littlebear: Romeros: wuru charge premium p1 ices. Well we can't do that anymore. The Clayton facility will obviously have to be shut down. Its business can be shifted to the other two check processing centers in the region. I would advise against that. The $1,100,000 in facility depreciation at the Clayton location is misleading. That facility should last indenitely with proper maintenance. And it has no resale value; there is no other commercial activity around Clayton. What about the other costs at Clayton? If we shifted Clayton's sales over to the other two processing centers in the region, we wouldn't save anything on direct labor or variable overhead costs. We might save $90,000 or so in local administrative expense, but we would not save any regional administrative expense and corporate headquarters would still charge us 9.5% of our sales as corporate administrative expense. In addition, we would have to rent more space in Billings and Great Falls in order to handle the work transferred from Clayton; that would probably cost us at least $600,000 a year. And don't forget that it will cost us something to move the equipment from Clayton to Billings and Great Falls. And the move will disrupt service to customers. I understand all of that, but a money-losing processing center on my performance report is completely unacceptable. Fixed Expenses Total Costs Assigned Not Avoidable Avoidable to Clayton Equipment 1,200,000 Depreciation Local Administration 150,000 Expense Regional 360,000 Administration Expense Corporate 1,140,000 Administration Expense