Bright Inc.

Bright Inc. is a multinational company based in Dubai. It has operational businesses in three countries which are the USA, Australia and New Zealand.

In the USA, specifically located in Houston, Texas, Bright Inc. through its subsidiary, Bright (USA) Inc. isrunning a small consumer products manufacturing facilities and at the same time is on the verge of exploring a new business venture, in terms of car wash facilities.

In Sydney, Australia, Bright Inc. through its subsidiary, Opera Food & Beverage Company had successfully operated a chain of restaurant business. So, far there are three restaurants operating in Sydney.

In Waikato, New Zealand, Bright Inc. acquired a local company, NZ Dairy where the focus is on dairy products specifically on producing butter.

The annual cost of corporate headquarters of Bright Inc. amounting to $19,000,000 which includes the office expenses, salaries, and legal and accounting fees.

The following table summarizes operating details of each of the three subsidiaries in terms of number of employees and net income or loss in the most recent year:

Table 1: Number of employees and net income (loss)

	Number of employees	Net Income (loss) in $ (millions)
USA	1,580	(240)
Australia	850	180
New Zealand	510	300

The Production Manager of Bright (USA) Inc., Ronnie Stewart provided information about the subsidiarys annual fixed costs of $950,000. For a new product to be manufactured known as Robotec, its selling price will $8.50 with variable cost of $0.20. The combined state and federal tax rate currently is 28 percent.

Ronnie is wondering on the number of units need to make and sell each year to earn an after-tax profit of $280,000.

At the same time, Ronnie is facing a situation where he is considering 2 options: Option 1: To pay royalty to supplier Alpha of 10%.

Option 2: To pay royalty of 6.5% to supplier Beta, but, in this option the variable cost will increase to $0.25.

In both situations, Ronnie is clueless on the number of units the company must make and sell to generate $280,000 profit after taxes.

The Quality Manager of Bright (USA) Inc., Sarah McMahon, is unsure on how to analyze the cost of quality and its performance.

Bright (USA) Inc. has measured its quality costs for the past two years. After the company gathers its quality cost data, it summarizes those costs using the four categories shown below:

Table 2: Quality costs

	Last Year ($)	This Year ($)
Prevention costs	462,100	730,500
Internal failure costs	823,560	557,600
Appraisal costs	537,200	612,400
External failure costs	1,118,000	792,300

Product Development Manager at Bright (USA) Inc., Kent Duncan is considering to add self-service car wash as a new venture for the company. Kent Duncan is exploring the possibility of opening a self-service car wash and operating it for the next five years as additional revenue to the company.

He has gathered the following information which is recorded below:

1. A building in which a car wash could be installed is available under a five-year lease at a cost of $1,700 per month.
2. Purchase and installation costs of equipment would total $200,000. In five years the equipment could be sold for about 10% of its original cost.
3. An investment of an additional $2,000 would be required to cover working capital needs for cleaning supplies, change funds, and so forth.
4. Both a wash and a vacuum service would be offered. Each customer would pay

$2.00 for a wash and $1.00 for access to a vacuum cleaner.

1. The only variable costs associated with the operation would be 20 cents per wash for water and 10 cents per use of the vacuum for electricity.
2. In addition to rent, monthly costs of operation would be: cleaning, $450; insurance, $75; and maintenance, $500.
3. Gross receipts from the wash would be about $1,350 per week. According to the experience of other car washes, 60% of the customers using the wash would also use the vacuum.

Kent, after consultation with the management, has set up a policy where the car wash will not be opened unless it provides at least a 10% return.

In Sydney, Australia, a subsidiary of Bright Inc., Opera Food & Beverage Company owns and operates three restaurants in Sydney.

The company allocates its fixed administrative expenses to the three restaurants on the basis of sales dollars. Last year the fixed administrative expenses totaled $19,800,000 and were allocated as shown in the table below.

This year the Malabar Garden Grill restaurant doubled its sales to $165 million. The sales levels in the other two restaurants remained unchanged. The company's sales data for this year were also shown in table 2 below. Fixed administrative expenses for this year remained unchanged at $19,800,000.

Table 3: Sales, its percentages and allocation of fixed administrative expenses

	Last Year	This Year
Restaurants	Total sales	Percentage of total sales	Allocation of fixed administrative expenses based on percentage of total sales	Total sales	Percentage of total sales
Sydney Harborside Eatery	$62,500,000	31.25%	$5,875,000	$62,500,000	22.12%
Malabar Garden Grill	$82,500,000	41.25%	$7,755,000	$165,000,000	58.41%
Oriental Taste Specialty	$55,000,000	27.50%	$5,170,000	$55,000,000	19.47%
Total	$200,000,000	100%	$18,800,000	$282,500,000	100%

Whereas, in Waikato, New Zealand, NZ Dairy Ltd, another subsidiary of Bright Inc. is focusing is producingdairy products specifically on butte in its factory located in Waikato Industrial Zone.

The factory is specifically producing two types of butter: salted and unsalted. The salted butter is sold using brand name Tetote (which means salted in Maori language) at $11 per unit and the unsalted is sold using the brand name Koretote (which means unsalted in Maori language) at a price of $14 per unit.

To produce the butter, DSO Dairy requires 5,000 litres of cow milk every month that costs

$16,000. This $16,000 batch cost is allocated to the two products using number of units. Each batch of the cow milk yields 15,000 units of Tetote and 25,000 units of Koretote.

Either product can be processed further. It costs $31,550 to convert 15,000 units of Tetote into 15,000 unitsof Hauora (which means healthy in Maori). Likewise, it costs $14,320 to

convert 25,000 units of Koretote into 25,000 units of Reka (sweet in Maori). Each unit of Hauora sells for $12, and each unit of Reka sells for $16.

Finally, the CEO of Bright Inc. has heard about Balanced Scorecard and how it can improve theperformance measurement system. He attended a seminar about Balanced Scorecard and found somepossible measures to be included in the Balanced Scorecard as shown in Table 4 below. However, he is unsure in which of the 4 perspectives of Balanced Scorecard, each of the measures listed in Table 4,belongs to. He is also still in the process to understand the possible advantages and disadvantages of Balanced Scorecard system before deciding whether or not Bright Inc. need to adapt such system.

Table 4: Possible measures for inclusion in scorecard.

Percentage of market share	Weight of waste produced
Number of patents approved	Manufacturing cycle efficiency
Sales of patent protected product	Growth rate of net operating income
Number of new products designed	Average training hours per employees
Average years of tenure per employee	Sales from products less than three years old
Customer perception about product leadership	Percent of interview candidates that accepted job offer
Number of process improvement suggestions per employee	Percent of revenue from environment friendly products
Percent of customers that strongly agree with the statement "Your company is committed to preserving environment."	Percent of customers that strongly agree with the statement "I received the delivery of my order on time."

Required:

Read the above case about Bright Inc. carefully, provide a report to meet the requirements of the management as described below in the Project Guide section.

Project Guide

In your report, you must meet the following requirements:

Requirement 1: (7 marks) CLO 4

About the corporate cost;

1. Allocate the $19,000,000 million corporate headquarters cost of Bright Inc. to the three subsidiaries in USA, Australia and New Zealand using:
   1. number of employees in each operating company as the allocation base.
   2. net income of each operating company as the allocation base.

1. Write a report to the management of Bright Inc. to explain about the advantages and disadvantages ofallocating corporate headquarters costs using (1) employees and (2) net income as allocation bases.