Hi, please help me with the following case analysis in terms of what calculations I should show.

Mark Malcolm, the president of BPL was concerned about the operating results for 2016 (Exhibit A). Net Income before taxes was almost $50,000 less than that for year 2008. He was particularly upset by the reported loss of the Eastern Division in Toronto - a flagship operation - that always reported a healthy profit for the past eight years.

BPL had been a well-established family business that manufactured plastic product branded as B-Plast

When the company went public in 2011, it acquired a similar manufacturing business in Edmonton, Alberta that produced a product called Delta. BPL had operated these two units as independent and decentralized operations. Each division continued to produce the respective products and had the responsibility to operate as profit centers.

BPL used a standard costing system. Over the years BPL improved the costing system and the actual operating costs pretty well came close to the standard costs. The performance bonuses were awarded to the divisional managers based on their achieving an operating income (EBIT) of 15% on sales. The eastern division had recently complained to the president that performance evaluation system needs some adjustments since he had no control over the sale of B-Plast but affecting its profit.

Corporate office took the responsibility of selling all products through two sales departments directly reporting to the president. These two departments attended to the sales both in the domestic and foreign markets - mostly in the USA. The sales managers were paid a commission based on their departmental total sales dollars. The standard pricing policy was the total production costs plus 75%.This pricing policy had proven to be successful in the domestic market. In the foreign market though, due to severe competition, the sales department was forced to lower the prices to stay competitive and to maximize the total sales dollars. The product Delta did sell well both in the domestic and foreign markets.

Looking at the operating statements, Mark realized that the fixed selling costs of the two sales departments were allocated to the divisions in proportion to the unit sales. During 2016, Mark also noticed that the older facility at the Eastern Division was operating at full capacity while the Western division was operating at 70% of capacity. He acknowledged that the complaint from the Eastern division to be justifiable.

Mark made a mental note to look at various options. He advised the two divisional managers that he has hired an independent consultant to review the operating results and make recommendations regarding the future operations of BPL. He also indicated to them that he had also asked the consultant to explore the discontinuation of any part of BPL and to make a general assessment of the planning and control systems at BPL, including pricing, cost structure, motivation and performance evaluation of divisional managers. After a couple of sessions with the consultant, Mark realized that he needed to build and grow the company that is more focused in terms of their overall strategy and build their reputation on their core competencies.

At the suggestion of the consultant, he also informed his direct reports to reexamine their current way of doing business and initiate a change management program within BPL to improve overall performance. The consultant had suggested that BPL develop a Balanced Scorecard approach to overall corporate strategy, value proposition and execution. Mark realized that such an initiative might receive some resistance from his managers due to their lack of appreciation of this concept and approach.

Mark was clear that he needed to build BPL as a strong, reliable, high quality products company capable of competing in the international market. He felt that such changes are imminent and healthy for BPL as he had a vision of taking BPL to a $10 million dollar company by 2015. He realized that such a goal of sustainability and growth needed to have a much better system of management planning and controls and that he needed to provide the leadership.

Assume the role of the said consultant to help Mark in his proposed initiatives. Mark had already gathered some operating statistics for your use (Exhibits A & B). I need to advise Mark on some of the issues that have been raised. I already know what to write about in terms of long term issues such as modifying the marketing strategy and vision and mission statements. I just need some guidance for what types of calculations I can show to target the issues highlighted in this case.

Exhibit A

BPL

Operating Statement

For the year ended December 31, 2016

EasternWesternTotal

($ Canadian)

Sales 858,750967,5001,826,250

Cost of Sales (Manufacturing)

Variable Processing Costs450,000390,000840,000

Fixed Overhead Costs150,000175,000325,000

Total Manufacturing Costs600,000565,0001, 165,000

Gross Profit258,750402,500661,250

Variable Selling & Admin. 157,500166,250323,750

Fixed Selling Expenses114,54575,455190,000

Total Selling & Admin.272,045241,705513,750

Divisional Profit (Loss)( 13,295)160,795147,500

Head Office Administration75,000

Net Income before Taxes72,500

Investment (Capital Structure) 450,000875,0001,325,000

Return on Investment-3.0%18.4%5.5%

Weighted Average Cost of Capital for BPL: Assumed at 12%

Exhibit B BPL

2005 Actual Operating Data

Eastern WesternTotal

Unit Sales:

Domestic30,00025,00055,000

Foreign15,0007,50022,500

Total 45,000 32,500 77,500

Sales Price per Unit: ($ Can)

Domestic21.5030.00

Foreign14.2529.00

Variable Cost/Unit:

Variable Manufacturing Costs10.0012.00

Variable Selling & Admin

Domestic 3.005.00

Foreign 4.505.50

Fixed Manufacturing Costs:150,000175,000325,000

Fixed Selling Costs:

Domestic 100,000

Foreign 90,000

Head Office Admin Expenses (all fixed) 75,000