Page View A Read aloud (T) Add text y Draw Highlight ason Rogers is the new vice president of the Central Region of Nievo Enterprises, a company That provides purchasing services for small companies. This includes receiving orders from these companies, finding suppliers, and placing orders. Centralizing purchasing increases the Durchasing power of its small customers, often resulting in better prices. Nievo has three Qurchasing centers, which are located in Moore, Oklahoma; Enid, Oklahoma; and Lawton, Oklahoma. Soon after becoming vice president, Mr. Rogers requested the financial results for the most recent fiscal year ended 2021 from the region's controller, Jem Dawson. The report prepared in the format required by headquarters for all regional reportsis as follows: Nievo Enterprises Central Region Financial Performance Purchasing Centers Enid Total Moore Lawton $25,000,000 $ 10,000,000 $ 9,000,000 $ 6,000,000 4,250,000 95,000 600,000 Sales Operating expenses: Direct labor Variable overhead Equipment depreciation Facility expense Local administrative expense Regional administrative expense Corporate administrative expense Total operating expense Net operating income (loss) 550,000 16,000,000 425,000 1,950,000 1,400,000 225,000 750,000 2,375,000 23,125,000 $1,875,000 6,250,000 175,000 650,000 450,000 70,000 300,000 950,000 8,845,000 1,155,000 5,500,000 155,000 700,000 400,000 80,000 270,000 855,000 7,960,000 1,040,000 75,000 180,000 570,000 6,320,000 (320,000) $ $ $ Notes: Includes building rental expense for Moore and Enid locations and building depreciation expense for the Lawton location includes administrative expenses incurred at the purchasing centers. Includes regional administrative expenses allocated to the purchasing centers based on sales. includes corporate administrative expenses charged to segments of the company such as the Central Region and the purchasing centers at the rate of 9.5% of a segment's sales. Mr. Rogers and Ms. Dawson met to discuss the report. Rogers: I'm concerned about Lawton. It did not have a loss in 2020. What's going on now? Dawson: The Lawton facility has been profitable since it began operations but it lost a big contract this year to a new competitor. We were underbid. Also, Lawton's costs are very high, primarily its facilities expenses. Due to both these factors, a lot of Lawton employees had to be let go. Rogers: Why are Lawton's facility expenses so high? Dawson: Unlike Moore and Enid where we could rent facilities cheaply, we had to build facilities in Lawton. Unfortunately our contractor went way over budget and now we have significant facility depreciation expense. This is affecting our ability to bid competitively against new entrants in the market. Rogers: Well the solution is obvious. The Lawton facility needs to be shut down. Its workload can be shifted to the Central Region's other two purchasing centers. Dawson: I don't believe we should do that. Lawton's $550,000 depreciation expense is somewhat misleading. The facility is a good one and we can use it indefinitely. If we don't use it, we cannot resale it because there is no need for such a facility in the area. Rogers: Tell me about Lawton's other costs. Dawson: Well, shifting Lawton's workload to the other two purchasing centers will not save direct labor or variable overhead costs. We might possibly be able to reduce the local administrative expense by $45,000 but we would not save any of the regional administrative expenses or corporate's administrative expenses charge of 9.5%. To accommodate the increased workload in Moore and Enid, we would have to rent more space which would probably cost approximately $300,000 a year. Rogers: Yes, it's true what you are saying, but a center operating at a loss does not look good on my performance report. I just can't have that. Dawson: But closing the Lawton facility will also mean more employees will lose their jobs. Rogers: True, but sometimes difficult choices have to be made. Dawson: Also, the investment in the Lawton facility would have to be written-off by removing its book value. Rogers: The write-off isn't a significant concern. I can explain that as an outcome of the prior vice president's choice of contractor or possibly his inadequate monitoring of the project or both. It will be much worse for me going forward to have continued losses at one of my purchasing centers. I'm going to recommend that the Lawton facility be closed at the next board meeting. Respond to the below requirements. The group response should be typed, with 12-point Times New Roman font and 1 margins, single-spaced. The response should be a Microsoft Word document (not a PDF file) and should be written in a clear and concise manner. Separate your responses by using the requirement numbers as subheadings (e.g., Requirement 1, Requirement 2, etc...). a Include group member names and section number at the top of the first page of your response. Only one group member should submit your group's response. Requirements 1. List all costs that are relevant to the decision of whether to close (shut down the Lawton processing center or not, and calculate the financial advantage or disadvantage of closing this center. 2. Complete the below report for the Total Column only to show the impact on performance if the Lawton facility is closed. Nievo Enterprises Central Region Financial Performance (assuming Lawton center closed) Total Sales Operating expenses: Direct labor Variable overhead Equipment depreciation Facility expense Local administrative expense Regional administrative expense Corporate administrative expense Total operating expense Net operating income (loss) 3. Based on the quantitative analysis, is it in the best interest for the company (Nievo Enterprises) overall to close the Lawton center? Explain. 4. Why might it be in Jason Roger's self-interest to close the Lawton center? Is Mr. Rogers acting ethically? Explain. Include in your discussion if Mr. Rogers is potentially violating a standard of the IMA Statement of Ethical Professional Practice. 5. What are some qualitative factors that should be considered in the decision to close the Lawton facilities, including their implications? (Discuss at least two factors. These could be explicitly mentioned in the problem or something your group identifies that would be relevant to consider even though not stated in the problem.) 6. Should the Lawton center's depreciation impact the prices Lawton charges for its services? Page View A Read aloud (T) Add text y Draw Highlight ason Rogers is the new vice president of the Central Region of Nievo Enterprises, a company That provides purchasing services for small companies. This includes receiving orders from these companies, finding suppliers, and placing orders. Centralizing purchasing increases the Durchasing power of its small customers, often resulting in better prices. Nievo has three Qurchasing centers, which are located in Moore, Oklahoma; Enid, Oklahoma; and Lawton, Oklahoma. Soon after becoming vice president, Mr. Rogers requested the financial results for the most recent fiscal year ended 2021 from the region's controller, Jem Dawson. The report prepared in the format required by headquarters for all regional reportsis as follows: Nievo Enterprises Central Region Financial Performance Purchasing Centers Enid Total Moore Lawton $25,000,000 $ 10,000,000 $ 9,000,000 $ 6,000,000 4,250,000 95,000 600,000 Sales Operating expenses: Direct labor Variable overhead Equipment depreciation Facility expense Local administrative expense Regional administrative expense Corporate administrative expense Total operating expense Net operating income (loss) 550,000 16,000,000 425,000 1,950,000 1,400,000 225,000 750,000 2,375,000 23,125,000 $1,875,000 6,250,000 175,000 650,000 450,000 70,000 300,000 950,000 8,845,000 1,155,000 5,500,000 155,000 700,000 400,000 80,000 270,000 855,000 7,960,000 1,040,000 75,000 180,000 570,000 6,320,000 (320,000) $ $ $ Notes: Includes building rental expense for Moore and Enid locations and building depreciation expense for the Lawton location includes administrative expenses incurred at the purchasing centers. Includes regional administrative expenses allocated to the purchasing centers based on sales. includes corporate administrative expenses charged to segments of the company such as the Central Region and the purchasing centers at the rate of 9.5% of a segment's sales. Mr. Rogers and Ms. Dawson met to discuss the report. Rogers: I'm concerned about Lawton. It did not have a loss in 2020. What's going on now? Dawson: The Lawton facility has been profitable since it began operations but it lost a big contract this year to a new competitor. We were underbid. Also, Lawton's costs are very high, primarily its facilities expenses. Due to both these factors, a lot of Lawton employees had to be let go. Rogers: Why are Lawton's facility expenses so high? Dawson: Unlike Moore and Enid where we could rent facilities cheaply, we had to build facilities in Lawton. Unfortunately our contractor went way over budget and now we have significant facility depreciation expense. This is affecting our ability to bid competitively against new entrants in the market. Rogers: Well the solution is obvious. The Lawton facility needs to be shut down. Its workload can be shifted to the Central Region's other two purchasing centers. Dawson: I don't believe we should do that. Lawton's $550,000 depreciation expense is somewhat misleading. The facility is a good one and we can use it indefinitely. If we don't use it, we cannot resale it because there is no need for such a facility in the area. Rogers: Tell me about Lawton's other costs. Dawson: Well, shifting Lawton's workload to the other two purchasing centers will not save direct labor or variable overhead costs. We might possibly be able to reduce the local administrative expense by $45,000 but we would not save any of the regional administrative expenses or corporate's administrative expenses charge of 9.5%. To accommodate the increased workload in Moore and Enid, we would have to rent more space which would probably cost approximately $300,000 a year. Rogers: Yes, it's true what you are saying, but a center operating at a loss does not look good on my performance report. I just can't have that. Dawson: But closing the Lawton facility will also mean more employees will lose their jobs. Rogers: True, but sometimes difficult choices have to be made. Dawson: Also, the investment in the Lawton facility would have to be written-off by removing its book value. Rogers: The write-off isn't a significant concern. I can explain that as an outcome of the prior vice president's choice of contractor or possibly his inadequate monitoring of the project or both. It will be much worse for me going forward to have continued losses at one of my purchasing centers. I'm going to recommend that the Lawton facility be closed at the next board meeting. Respond to the below requirements. The group response should be typed, with 12-point Times New Roman font and 1 margins, single-spaced. The response should be a Microsoft Word document (not a PDF file) and should be written in a clear and concise manner. Separate your responses by using the requirement numbers as subheadings (e.g., Requirement 1, Requirement 2, etc...). a Include group member names and section number at the top of the first page of your response. Only one group member should submit your group's response. Requirements 1. List all costs that are relevant to the decision of whether to close (shut down the Lawton processing center or not, and calculate the financial advantage or disadvantage of closing this center. 2. Complete the below report for the Total Column only to show the impact on performance if the Lawton facility is closed. Nievo Enterprises Central Region Financial Performance (assuming Lawton center closed) Total Sales Operating expenses: Direct labor Variable overhead Equipment depreciation Facility expense Local administrative expense Regional administrative expense Corporate administrative expense Total operating expense Net operating income (loss) 3. Based on the quantitative analysis, is it in the best interest for the company (Nievo Enterprises) overall to close the Lawton center? Explain. 4. Why might it be in Jason Roger's self-interest to close the Lawton center? Is Mr. Rogers acting ethically? Explain. Include in your discussion if Mr. Rogers is potentially violating a standard of the IMA Statement of Ethical Professional Practice. 5. What are some qualitative factors that should be considered in the decision to close the Lawton facilities, including their implications? (Discuss at least two factors. These could be explicitly mentioned in the problem or something your group identifies that would be relevant to consider even though not stated in the problem.) 6. Should the Lawton center's depreciation impact the prices Lawton charges for its services