QUESTION

What advice would you give to the board of directors concerning how they determine bonuses in the future, set targets and Globals current performance (or any other topics you feel needs to be addressed)? Write a memo to the Board.

Lei Chang was hired as chief executive office (CEO) in late November by the board of directors of Global Images Corporation, a company that produces an advanced global positioning system (GPS) device. The previous CEO had been fired by the board due to a series of shady business practices including shipping defective GPS devices to dealers. Guoshang felt that his first priority on the job was to restore employee morale which hacd suffered during the previous CEO's tenure. He was particularly anxious to build a sense of trust between himself and the company's employees. His second priority was to prepare the budget for the coming year, which the board of directors wanted to review in their December 15 mecting. After hammering out the details in meetings with key managers, Chang was able to put together a budgct that he and his management team felt the company could realistically meet during the coming year. That budget appears below: Basic budget data Units in beginning inventory Units produced Units sold Units in ending inventory 400,000 400,000 Variable costs per unit: Direct materials (4 parts $14.30 per part) Direct labor (.5 bgs.@ S30 per hour) Variable manufacturing overhead Variable selling and administrative S 57.20 15.00 5.00 10.00 S 87.20 Total variable costs per unit Fixed costs; Fixed manufacturing overhead S 6,888,000 Fixed selling and administrative Total fixed costs S11,448,000 Variable selling and administrative expenses are related to commission and shipping costs. Pixed manufacturing overhead is applied on the basis of units produced. Since Global Images has only one product they chose the simplest allocation method available. As a resuit, fixed manufacturing overhead per unit is determined by dividing the total fixed manufacturing overhead costs by the number of units produced. Per unit Direct materials Direct labor Variable MO Fixed MO per unit ($6,888,000/400,000) Total product cost per unit S57.20 15.00 5.00 $9442 Lei Chang was hired as chief executive office (CEO) in late November by the board of directors of Global Images Corporation, a company that produces an advanced global positioning system (GPS) device. The previous CEO had been fired by the board due to a series of shady business practices including shipping defective GPS devices to dealers. Guoshang felt that his first priority on the job was to restore employee morale which hacd suffered during the previous CEO's tenure. He was particularly anxious to build a sense of trust between himself and the company's employees. His second priority was to prepare the budget for the coming year, which the board of directors wanted to review in their December 15 mecting. After hammering out the details in meetings with key managers, Chang was able to put together a budgct that he and his management team felt the company could realistically meet during the coming year. That budget appears below: Basic budget data Units in beginning inventory Units produced Units sold Units in ending inventory 400,000 400,000 Variable costs per unit: Direct materials (4 parts $14.30 per part) Direct labor (.5 bgs.@ S30 per hour) Variable manufacturing overhead Variable selling and administrative S 57.20 15.00 5.00 10.00 S 87.20 Total variable costs per unit Fixed costs; Fixed manufacturing overhead S 6,888,000 Fixed selling and administrative Total fixed costs S11,448,000 Variable selling and administrative expenses are related to commission and shipping costs. Pixed manufacturing overhead is applied on the basis of units produced. Since Global Images has only one product they chose the simplest allocation method available. As a resuit, fixed manufacturing overhead per unit is determined by dividing the total fixed manufacturing overhead costs by the number of units produced. Per unit Direct materials Direct labor Variable MO Fixed MO per unit ($6,888,000/400,000) Total product cost per unit S57.20 15.00 5.00 $9442