Stand Alone Project

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Stand-Alone Project: Case Study in Managerial Accounting You should begin working on the Stand-Alone Project early in the course. Each assignment provides a benchmark for completing the Stand-Alone Project in a timely manner while working through the course. You will find this information in the \"Stand-Alone Project Benchmark\" section of each assignment. Your Stand-Alone Project responses should be both grammatically and mechanically correct and formatted in the same fashion as the project itself. If there is a Part A, your response should identify a Part A, etc. In addition, you must appropriately cite all resources used in your response and document them in a bibliography using APA style. Each assignment in this course focuses on a different concept in managerial accounting. These concepts apply whether a firm is involved in manufacturing, merchandising, or service, as well as non-profit organizations. The purpose of this project is to help you understand the use and application of the concepts covered in the course. You are being asked to study an actual firm and to report on its use of the concepts covered in this course. (A 20-page response is required.) Part Select a firm that is publicly traded. This ensures you can access the needed data and information from A published financial disclosures and articles found in various business journals such as Strategic Finance, Management Accounting Quarterly, etc. Note: For large firms, you may want to study only a segment of the firm. If so, ensure that you break down company data for the segment chosen. Provide the following background information on the firm you selected. 1. Firm Name 2. Description of the Industry in Which the Firm Operates 3. Type of Business or Segment of the Firm (manufacturing, merchandising, service, or non-profit organization) 4. General Description of the Firm's Operations, Organization, Products, and Markets Note: The rest of the report will deal with the concepts covered in this course. Following are concepts that should be discussed in your report. Although some discussion relating to each concept is expected, please feel free to place a greater emphasis on topics of special interest to you. You may also want to place an emphasis on an area of weakness that may result in corrective action by the firm. Conversely, for your benefit, you may want to explore in depth a topic in which the firm has a real strength. Your study may find areas in which the firm needs improvement. A \"no\" answer for many of the questions would indicate a weakness in the firm's systems. In those instances, you should make recommendations. Provide complete details of the recommendations that you make, including why the recommendation is being made and the benefits to be gained. Each of the following components of your report requires a minimum of two 2) pages. This allows flexibility for you to emphasize your areas of specific interest. Part B Cost Behavior and Cost-Volume-Profit (CVP) (Lesson #1): Assess your firm's use of these tools. 1. Does the firm break down their costs by behavior? 2. Do they determine their break-even point? 3. Do they use these concepts in the decision-making process? Do you have any recommendations to make? Part C ABC, Job Order, and Process Costing and Cost Allocations (Lesson #2): Describe the cost system used by your firm. 1. If your firm is not using ABC costing, do you think that it is a good candidate to do so? Why or why not? 2. Do you have any recommendations to make? Part D Budgeting and Variance Analysis (Lesson #4): Describe the budgeting process used by your firm. 1. Does the process follow the responsibility concept? 2. Can you ascertain how employees view the process? 3. Is a flexible budget concept used? Do you have any recommendations to make? Part E Cost, Profit, and Investment Center (Lesson #5) 1. Is decision making centralized or decentralized? 2. How is performance evaluated? 3. Does the firm follow the decision-making and evaluation concepts covered in this course? 4. Does the firm use a balanced scorecard? 5. Do you have any recommendations to make? Part Decision-Making Policies (Lesson #6): You were given a number of examples showing how relevant F financial information was used in decision making. Review the firm's policies regarding these decisions. 1. Does it follow the concepts covered in this course? 2. Do you have any recommendations to make? STAND-ALONE PROJECT Stand-Alone Project: General Motors Corporation Name of Student University STAND-ALONE PROJECT Part A Firm Name: General Motors Cpmpany Headquarters: Detroit, Michigan, US. Area Served: Worldwide (except Cuba, Syria, North Korea, Iran, Sudan) No. of Locations: 396 facilities in six continents CEO: Mary Barra Chairman: Tim Solso Industry: Automotive Segment of Firm: Automobile Division Ticker symbol: GM Website: gm.com General Motors Mission Statement "G.M. is a multinational corporation engaged in socially responsible operations, worldwide. It is dedicated to provide products and services of such quality that our customers will receive superior value while our employees and business partners will share in our success and our stock-holders will receive a sustained superior return on their investment." General Motors Vision Statement "Over the past 100 years, GM has been a leader in the global automotive industry. And the next 100 years will be no different. GM is committed to leading the industry in alternative fuel propulsion." "GM's vision is to be the world leader in transportation products and related services. We will earn our customers' enthusiasm through continuous improvement driven by the integrity, teamwork, and innovation of GM people." STAND-ALONE PROJECT General Description General Motors was founded in September 16, 1908 in Flint, Michigan by William C. Durant and Charles Stewart Mott. In 1910, Durant lost control in General Motors to bankers trust due to heavy loans taken for purchase of the company and a sudden decline in the sale of vehicles. Durant, in 1911, formed Chevrolet Motor Car Company and secretly purchased controlling interest in General Motors and took over the control of the company after a dramatic proxy war. The growth of General Motors was at its peak in early 1980s. At that time the company had 150 assembling plants and more than 349,000 workers. From 1931 to 2007 General Motors was the global leader in car sales for 77 consecutive years. The company stood second largest car maker by sales in 2008, 2009 and 2010. In 2011 company regained its first position and became the world's largest automaker by vehicle unit sale. Markets General Motors has its presence around the world except North Korea, Cuba, Iran, Sudan, and Syria. The company has market its strong presence in the continents of North America, South America, Asia, Africa, Europe and Oceania (Australia and New Zealand). The network of the company is growing day by day in every country of every continent. Segments and Products The company is divided in five business segments. They are: GM North America (GMNA), Opel Group, GM International Operations (GMIO), GM South America (GMSA), and GM Financial STAND-ALONE PROJECT General Motors manufactures vehicles under 13 brand names, namely, Chevrolet, Cadillac, HSV, Alpheon, Buick, GMC, JieFang, Wuling, Opel, Holden, Baujon, Vauxhall and UzDaewoo. The company also has a number of joint ventures in Pakistan, Russia, Egypt, South Africa, etc. Chapter 11 Bankruptcy General Motors was worst hit by recession in 2009. On June 8, 2009 GM filed for chapter 11 bankruptcy and on July 10, 2009, US government released a bailout package of $49.5 billion through its troubled assets relief program to save General Motors. A study revealed that GM bailout saved 1.2 million jobs in US and preserved tax revenue of $39 billion. During the recovery phase the company stopped the production of Pontiac, Saturn and Hummer and sold its Swedish brand Saab to Dutch automaker Spyker. Financials In 2013 GM manufactured 9,714,652 vehicles. Revenue of the company stood at $155.929 billion in 2014 with an operating income of $1.530 billion. The net income of the company was $4.018 billion for the year 2014 as compared to $5.331 billion of 2013. The total assets of the company increased to $177.677 billion in 2014 as compared to $166.344 billion in 2013. Basic earnings per common share remained at $1.75in 2014. One of the main reasons of decline in net income during the year 2014 was the ignition switch problem due to which company recalled its cars for free replacement which resulted in a net loss of $1.3 billion. Sales of vehicles in US were 2,935,008 in 2014 as compared to 2,786,078 in 2013 registering an increase of 5.3%. Part B STAND-ALONE PROJECT Cost Behavior Cost behavior refers to the change in cost of production with relation to the change in level of activity. The costs which vary in proportion to the increase or decrease in the level of activity are known as variable costs whereas the costs which do not change with the change in level of activity are known as fixed costs. It is important for the management to understand cost behavior to plan and control its costs. Understanding of cost behavior is of great importance in determining break-even point or for doing any other cost-volume-profit analysis. Use of cost behavior patterns makes budgets and variance reports more effective. Cost-Volume-Profit (CVP) Analysis CVP analysis is a tool that is used by business managers to make better decisions in business. It is a tool to determine the change in company's operating income due to change in volume and costs. It assists the managers in determining the answer to various questions such as what is break-even point, what will be the effect of future spending on success and failure of the business. CVP helps the management to understand and predict the course of business for its company so the management is much concerned about the effect of their decision on profit. So it is more important for the management to understand the relationship among profit, cost, revenue and quantity to be produced. CVP analysis is helpful for the management in evaluating the effect of pricing strategies on alternative products. It is also helpful in evaluating the pricing strategies of the competitors and to grow the market share. General Motors Cost Break-down STAND-ALONE PROJECT Yes, General Motors break down their cost according to cost behavior. The company breaks its cost of material used in two categories; standard aluminum and 90% length copper motor. Mechler, G. C. (2009) cited that the analysis indicated that in squirrel cage manufacturing the efficiency increased by 15% when switching from aluminum to copper, as a result copper motor can be economized by 10% in length to achieve the same efficiency. Solan A. P., in his book, 'My years with General Motors', is of the view that it is very difficult to compute cost of goods produced in a car manufacturing company. At GM indirect costs are related to direct productive labor and it is calculated on the basis of wage rate. The cost break-down is done on the basis of fixed cost and variable costs. Fixed costs remain same to a certain level of activity whereas variable costs increase as the level of activity increases. The elements of variable costs are raw material, labor, power and fuel, etc. GM emphasizes on the variable cost and breaks it on the basis of bills of material. A bill of material is prepared in which each and every element of cost is found out and the efforts are made to bring the cost of each element to its lowest possible. It helps in decreasing the cost of production thereby increasing the optimum utilization of the resources. Break-even at General Motors Break-even is a point of production where the revenue is equal to the cost of production. It is situation of no profit no loss. Anything earned above break-even point is profit for the company. It is important for every business to know that from what point it will start earning profits. The calculation of break-even point is quite difficult in the huge sized plants as GM has. GM calculates its break-even on the basis of number of units it will sell. Whiston, D. (July 23, 2015) is of the view that break-even of General Motors has dropped down as it has set up a STAND-ALONE PROJECT voluntary employees' beneficiary association for the retiree health-care costs of the United Auto Workers. It has aided General Motors to lower down its break-even as this would help to save GM about $3 billion a year, resulting in lowering down of break-even. He further adds that GM is working on a demand-pull model where it is producing as per the market demand. Due to it the company is foreseeing a high degree of operating leverage. Part C Activity Based Costing (ABC) Activity based costing is a more logical method of costing as compared to traditional costing. First of all it accumulates overheads for all the different activities of organization and then the product is assigned all the cost of these activities. In ABC cost to the drivers is assigned using cost drivers. It is a method in which every activity is based on its resources instead of based on complete products and services. ABC provides an accurate calculation of overhead expenses that will be incurred for each product. It identifies specific cost drivers for cost relating to each resource. The cost is allocated after taking in account the consumption pattern of cost drivers. It provides more scientific and accurate base for allocation of cost between the product lines. Job Order Costing In job order costing the manufacturing costs is assigned to the batches of the product. It is used where the products manufactured are different from each other. It can be virtually used in an industry to ensure that the price of the product covers the cost incurred on it and also leaves a profit. References Mechler, G. C. (2009) Manufacturing and Cost Analysis for Aluminum and Copper Die Cast STAND-ALONE PROJECT Induction Motors for GM's Powertrain and R&D Divisions. Retrieved from http://msl.mit.edu/theses/Mechler_GC-thesis.pdf Solan A. P.: My Years With General Motors (pg. 178-183). Retrieved from https://books.google.as/books? id=_uFqBgAAQBAJ&pg=PA180&lpg=PA180&dq=cost+classification+of+ %22general+motors %22&source=bl&ots=0HOGAWgWox&sig=d07LuAuxyooCsOOHsFlxsoUVs6s&hl=en &sa=X&ved=0CD8Q6AEwB2oVChMIiZfmt7fxgIVA5mCh0LRgd7#v=onepage&q=cost%20classification%20of%20%22general %20motors%22&f=false http://www.gm.com/company/aboutGM/our_company.html http://www.gm.com/content/dam/gmcom/COMPANY/Investors/Stockholder_Information/PDFs/ 2014_GM_Annual_Report.pdf Whiston, D. (July 23, 2015) GM is finally on the verge of becoming the automaker it should be. Retrieved from http://analysisreport.morningstar.com/stock/research? t=GM®ion=USA&culture=en-US&productcode=MLE STAND-ALONE PROJECT Stand-Alone Project: General Motors Corporation Name of Student University STAND-ALONE PROJECT Part A Firm Name: General Motors Company Headquarters: Detroit, Michigan, US. Area Served: Worldwide (except Cuba, Syria, North Korea, Iran, Sudan) No. of Locations: 396 facilities in six continents CEO: Mary Barra Chairman: Tim Solso Industry: Automotive Segment of Firm: Automobile Division Ticker symbol: GM Website: gm.com General Motors Mission Statement "G.M. is a multinational corporation engaged in socially responsible operations, worldwide. It is dedicated to provide products and services of such quality that our customers will receive superior value while our employees and business partners will share in our success and our stock-holders will receive a sustained superior return on their investment." General Motors Vision Statement "Over the past 100 years, GM has been a leader in the global automotive industry. And the next 100 years will be no different. GM is committed to leading the industry in alternative fuel propulsion." "GM's vision is to be the world leader in transportation products and related services. We will earn our customers' enthusiasm through continuous improvement driven by the integrity, teamwork, and innovation of GM people." STAND-ALONE PROJECT General Description General Motors was founded in September 16, 1908 in Flint, Michigan by William C. Durant and Charles Stewart Mott. In 1910, Durant lost control in General Motors to bankers trust due to heavy loans taken for purchase of the company and a sudden decline in the sale of vehicles. Durant, in 1911, formed Chevrolet Motor Car Company and secretly purchased controlling interest in General Motors and took over the control of the company after a dramatic proxy war. The growth of General Motors was at its peak in early 1980s. At that time the company had 150 assembling plants and more than 349,000 workers. From 1931 to 2007 General Motors was the global leader in car sales for 77 consecutive years. The company stood second largest car maker by sales in 2008, 2009 and 2010. In 2011 company regained its first position and became the world's largest automaker by vehicle unit sale. Markets General Motors has its presence around the world except North Korea, Cuba, Iran, Sudan, and Syria. The company has market its strong presence in the continents of North America, South America, Asia, Africa, Europe and Oceania (Australia and New Zealand). The network of the company is growing day by day in every country of every continent. Segments and Products The company is divided in five business segments. They are: GM North America (GMNA), Opel Group, GM International Operations (GMIO), GM South America (GMSA), and GM Financial STAND-ALONE PROJECT General Motors manufactures vehicles under 13 brand names, namely, Chevrolet, Cadillac, HSV, Alpheon, Buick, GMC, JieFang, Wuling, Opel, Holden, Baujon, Vauxhall and UzDaewoo. The company also has a number of joint ventures in Pakistan, Russia, Egypt, South Africa, etc. Chapter 11 Bankruptcy General Motors was worst hit by recession in 2009. On June 8, 2009 GM filed for chapter 11 bankruptcy and on July 10, 2009, US government released a bailout package of $49.5 billion through its troubled assets relief program to save General Motors. A study revealed that GM bailout saved 1.2 million jobs in US and preserved tax revenue of $39 billion. During the recovery phase the company stopped the production of Pontiac, Saturn and Hummer and sold its Swedish brand Saab to Dutch automaker Spyker. Financials In 2013 GM manufactured 9,714,652 vehicles. Revenue of the company stood at $155.929 billion in 2014 with an operating income of $1.530 billion. The net income of the company was $4.018 billion for the year 2014 as compared to $5.331 billion of 2013. The total assets of the company increased to $177.677 billion in 2014 as compared to $166.344 billion in 2013. Basic earnings per common share remained at $1.75in 2014. One of the main reasons of decline in net income during the year 2014 was the ignition switch problem due to which company recalled its cars for free replacement which resulted in a net loss of $1.3 billion. Sales of vehicles in US were 2,935,008 in 2014 as compared to 2,786,078 in 2013 registering an increase of 5.3%. STAND-ALONE PROJECT Part B Q1. Does the firm break down their costs by behavior? Cost Behavior Cost behavior refers to the change in cost of production with relation to the change in level of activity. The costs which vary in proportion to the increase or decrease in the level of activity are known as variable costs whereas the costs which do not change with the change in level of activity are known as fixed costs. It is important for the management to understand cost behavior to plan and control its costs. Understanding of cost behavior is of great importance in determining break-even point or for doing any other cost-volume-profit analysis. Use of cost behavior patterns makes budgets and variance reports more effective. Cost-Volume-Profit (CVP) Analysis CVP analysis is a tool that is used by business managers to make better decisions in business. It is a tool to determine the change in company's operating income due to change in volume and costs. It assists the managers in determining the answer to various questions such as what is break-even point, what will be the effect of future spending on success and failure of the business. CVP helps the management to understand and predict the course of business for its company so the management is much concerned about the effect of their decision on profit. So it is more important for the management to understand the relationship among profit, cost, revenue and quantity to be produced. CVP analysis is helpful for the management in evaluating the effect of pricing strategies on alternative products. It is also helpful in evaluating the pricing strategies of the competitors and to grow the market share. STAND-ALONE PROJECT General Motors Cost Break-down Yes, General Motors break down their cost according to cost behavior. The company breaks its cost of material used in two categories; standard aluminum and 90% length copper motor. Mechler, G. C. (2009) cited that the analysis indicated that in squirrel cage manufacturing the efficiency increased by 15% when switching from aluminum to copper, as a result copper motor can be economized by 10% in length to achieve the same efficiency. Solan A. P., in his book, 'My years with General Motors', is of the view that it is very difficult to compute cost of goods produced in a car manufacturing company. At GM indirect costs are related to direct productive labor and it is calculated on the basis of wage rate. The cost break-down is done on the basis of fixed cost and variable costs. Fixed costs remain same to a certain level of activity whereas variable costs increase as the level of activity increases. The elements of variable costs are raw material, labor, power and fuel, etc. GM emphasizes on the variable cost and breaks it on the basis of bills of material. A bill of material is prepared in which each and every element of cost is found out and the efforts are made to bring the cost of each element to its lowest possible. It helps in decreasing the cost of production thereby increasing the optimum utilization of the resources. Q2. Do they determine their break-even point? Break-even at General Motors Break-even is a point of production where the revenue is equal to the cost of production. It is situation of no profit no loss. Anything earned above break-even point is profit for the company. It is important for every business to know that from what point it will start earning profits. The calculation of break-even point is quite difficult in the huge sized plants as GM has. STAND-ALONE PROJECT GM calculates its break-even on the basis of number of units it will sell. Whiston, D. (July 23, 2015) is of the view that break-even of General Motors has dropped down as it has set up a voluntary employees' beneficiary association for the retiree health-care costs of the United Auto Workers. It has aided General Motors to lower down its break-even as this would help to save GM about $3 billion a year, resulting in lowering down of break-even. He further adds that GM is working on a demand-pull model where it is producing as per the market demand. Due to it the company is foreseeing a high degree of operating leverage. Q2. Do they use these concepts in the decision-making process? Do you have any recommendations to make? Break-even analysis and analyzing the behavior of cost are the key elements in decision making. General Motors uses break-even analysis and cost behavior in their decision-making process. The company ascertains its break-even and determines that at least how many units should be produced to achieve a condition of no profit and no loss. Recommendation Severe losses sustained by GM during US recession have forced the company to cut down its cost due to it the company is able to make its BEP at lower level of production. It is recommended that the company should further pay emphasis on cutting down its cost and should stop the production of its loss making models. Part C Q1. Describe the cost system used by your firm. Job Order Costing STAND-ALONE PROJECT In job order costing the manufacturing costs is assigned to the batches of the product. It is used where the products manufactured are different from each other. It can be virtually used in an industry to ensure that the price of the product covers the cost incurred on it and also leaves a profit. It is observed in the companies that manufacture various types of products. When a company performs jobs for different products, it becomes a difficult task to assign cost for product. The cost of each individual job is recorded because each job has different products. Job order costing is used by the manufacturing firms worldwide. A survey reveals that 51.1% of manufacturing firms in US use job costing system (www.accountingformanagement.org). GM uses process costing in manufacturing cars but also uses job order costing for custom made vehicles i.e. the vehicles that are to be manufactured as per buyer's specifications. For example, health care department of US government places an order of 1,000 ambulances with special suspension and extra back space. Here the vehicle is to be customized as per customer's requirement so job order costing will be used to find out the cost of vehicles. Process Costing Process costing is used where there is mass production of identical units. The cost of producing each product remains the same. Under this method the costs are accumulated for a fixed period of time. All the costs incurred on the production are summed up to find out the total cost of production. To find out the cost per unit the total cost of production is divided by the number of units produced. Process costing is widely used by car manufacturers all over the world as well as by General Motors. It uses process costing for all of its standard models that have a big market and are in regular demand. Q2. If your firm is not using ABC costing, do you think that it is a good candidate to do so? Why or why not? STAND-ALONE PROJECT Activity Based Costing (ABC) Activity based costing is a more logical method of costing as compared to traditional costing. First of all it accumulates overheads for all the different activities of organization and then the product is assigned all the cost of these activities. In ABC cost to the drivers is assigned using cost drivers. It is a method in which every activity is based on its resources instead of based on complete products and services. ABC provides an accurate calculation of overhead expenses that will be incurred for each product. It identifies specific cost drivers for cost relating to each resource. The cost is allocated after taking in account the consumption pattern of cost drivers. It provides more scientific and accurate base for allocation of cost between the product lines. ABC at GM The efforts for implementation of ABC in GM started in late 1980s. In May 1990, an organizational structure proposed by the cost team of the company for supporting ABC was accepted by cost systems and measurements council (CSMC). Company laid down an aggressive schedule to implement ABC in 41 plants in 1991, 38 in 1992 and 31 in 1993. As the ABC was a new concept some of the managers adopted it whereas some retaliated advocating the traditional system of costing. The managers who led the adaptation process shaped the ABC system that gradually became institutionalized through \"communization\" as the corporate standard Anderson, S. (1995). Q3. Do you have any recommendations to make? General Motors has adopted activity based costing in early 1990s. By using ABC the company has effectively and efficiently managed its cost. As the company has recovered from STAND-ALONE PROJECT huge deficit so it is recommended to make the more efficient use of ABC to control its cost and to earn good profits. Part D Q1. Describe the budgeting process used by your firm. Budgeting Budgeting is planning for future incomes and expenditures which serve as a guideline for spending. It is an important element of finance. Budget helps the companies to plan their income and expenses and to make decision about how they would like to distribute their money. Budgets are prepared for every department of the organization. Cash budget, production budget, marketing budget, purchases budget, sales budget are some of the common budgets. At GM a number of budgets are prepared in advance which serves as guiding principle for future. As the operations of the company are worldwide all the manufacturing plants of the company prepare their independent budgets. The budgeting is done at plant level. As the company purchases a number of spares and products from other suppliers, a separate budget is prepared for each of the items purchased. Muller, J. (May 16, 2015) says that GM has a marketing budget of $40 million a year on Facebook about $10 million of which is paid for advertisements. Company also prepare sales budget to plan their sales, production budget to plan manufacturing of vehicles, cash budget to plan their cash requirements, purchase budget to plan the purchase of various items and spares. Budgeting process at GM requires following five steps: Gathering the required data required for budget. Setting the limits of the budget. Collecting data of the past performance. Making projections. STAND-ALONE PROJECT Q2. Finding out the break-even. Does the process follow the responsibility concept? GM's Responsibility Concept GM follows responsibility concept. Under responsibility concept, all the relevant revenue and costs are assigned to various units of the organization on the basis of departments. Each department is designated as responsibility center. The individuals who have greatest potential to influence the cost are in question. These individuals are given the reporting responsibility to explain the outcome despite of degree of control over the results. Q3. Can you ascertain how employees view the process? The employees at GM take responsibility concept as a challenge. They are of the opinion that the company's management assigns responsibility after analyzing the efficiency of the departments and employees. The company does not assign over responsibility to any of its employees. The employees with high influence on cost are assigned high responsibility. They are required to explain the outcome rather than control over results. Q4. Is a flexible budget concept used? Do you have any recommendations to make? GMs Flexible Budget A flexible budget is the one which adjusts with the change in activity. It is more useful and sophisticated than static budget. It calculates the various levels of variable costs in contrast with change in revenue or change in level of activity. GM uses flexible budget for its production processes as the sales and demand for its products keep on varying. When the demand is high the company is required to increase its production to meet the increasing demand, which tends to STAND-ALONE PROJECT change the budget of the company. So the company makes the budgets at different levels of activity. Recommendation General Motors prepares and manages its budgets in an efficient and effective manner. The company's budgets are well planned as are based on the past data and performance. But looking into the uncertainty of past that happened with the company in 2009 is it recommended to the company to be more careful in planning its budgets and do conduct even more detailed variance analysis of its various costs. Part E Cost Center A cost center is part of an organization that is responsible for the cost it incurs but it does not produce any direct profit to the organization. Employees of the cost center are not responsible for revenue generation or usage of assets. For a manufacturer the cost centers comprise of each of its production departments as well as manufacturing service departments. Examples of cost centers are: Maintenance Department Human Resource Department Accounting Department Research and Development Department IT Department, etc. As the cost centers do not contribute in the profits of the organization, they are targeted during budget cuts in the form of layoffs and rollbacks. Profit Center STAND-ALONE PROJECT A profit center is that part of an organization that is responsible for revenues and costs. It is accounted for on an individual basis for the profit calculation. It is responsibility of a profit center to generate its own results and earnings. Generally manager of a profit center have authority for product pricing and operating expenses. It is decisive in finding out the most and least profitable unit in an organization. Profit center facilitates the management of the company to utilize its resources to maximize profitability. The management, in order to maximize its profits, allocates more resources to the areas with high profitability, whereas allocates less resources to less profitable areas of business. Investment Center An investment center is a business unit that directly utilizes capital and directly contributes to the profitability of a company. The performance of an investment center is calculated in agreement with the revenues it brings through the investments in capital assets. An investment center is also called investment decision. The investment center is related with assets, costs and revenues whereas a profit center deals with revenue and cost and a cost center deals only with the cost. Q1. Is decision making centralized or decentralized? Decision Making at GM Decision making at GM is decentralized. At GM four regional presidents and their strategic board are responsible for making evaluating and approving business plans. The decisions are taken at regional level and automotive strategy board is informed by 'Notice of decision'. The global process councils and regional strategy board come at automotive strategy board and make major decisions with GM's board of directors. STAND-ALONE PROJECT Q2. How is performance evaluated? Performance Evaluation at GM Performance evaluation is a tool to measure the actual performance of employees against expected performance. It provides an opportunity to the employees to interact with managers and discuss their job performance. It is helpful in identifying and training and development needs of the employees. Performance evaluation is given high emphasis at GM. The performance of the employees is evaluated half-yearly. They are given a change to interact with their supervisors or managers to discuss about their performance. A matrix is for each employee is prepared and their performance is evaluated. Q3. Does the firm follow the decision-making and evaluation concepts covered in this course? Yes, the firm follows the decision-making and evaluation concepts in the course of performance evaluation. Q4. Does the firm use a balanced scorecard? Use of Balance Scorecard at GM Balancescorecard.org defines balance scorecard as \"The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals.\" At GM there are four parts of balance scorecard. They are internal business perspective, learning and growth perspective, financial perspective and customer's perspective. STAND-ALONE PROJECT The internal business perspective is most important with regard to strategy planning of the company. It focuses on generic strategies and their use in internal perspective. Learning and growth perspective focuses on how the employees learn and improve themselves in order to achieve the vision of the company. It aims at satisfying customer's needs and improving business processes. The financial perspective deals with the financial goals and profit earning of the company. It focuses on how the predetermined profits can be achieved or how can the profit be maximized. Customer's perspective is the most difficult perspective among balance scorecard framework as the nature of customers differs from one to another. In balance scorecard it reflects the expectations of customers and partners (distributors, dealers, etc.). A deep analysis of this perspective converts strategy into a complex list of things to do. Q5. Do you have any recommendations to make? The decision-making process at is decentralized. Then also the company shall increase the degree of decentralization to lower level of management. The company has its operations all over the world and it requires high degree of decentralization to manage its issues. The company should increase the use of balance scorecards and should implement it to other departments such as research and development, etc. Part F Q1. Does it follow the concepts covered in this course? Yes General Motors follows all the concepts that are covered in the course. Financial information provides a base for decision making. It is used not only for making financial decisions but also for making strategic decisions by the companies. Be it production decisions, STAND-ALONE PROJECT purchasing decisions, capacity enhancement decisions, technology adoption decision, there is involvement of financial information in all of them. Decision Making A number of decisions are taken in the companies on day to day basis. Some of the decisions are simple but some are complex and require high level of critical thinking and analytical skills. Such kinds of decisions involve: Uncertainty: These are the decisions for which the facts as well as the consequences are not known. High Risk: These are the decisions which have a significant impact. Complexity: Complexity refers to the various factors that are interrelated and the one factor will affect the other. Interpersonal Issues: At the time of making decision it is equally important to consider the reaction of the people. Alternatives: There may be various alternatives. Each alternative has different consequences and uncertainties. It is manager's ability to select the best alternative from a number of alternatives available. Decision making involves following steps: First of all it is important to identify the decision that is to be made. All the relevant information is gathered pertaining to the decision. All the available alternatives are to be identified along with the path of actions. Choice of the best and suitable alternative from all the available alternatives. Implement the best chosen decision. Review the decision and its consequences. Decision Making at GM Decision making at GM involves various tools and techniques. Financial statements that are used in decision making are balance sheet, statement of income, statement of retained STAND-ALONE PROJECT earnings, cash flow statements, etc. General Motors also includes some statistical techniques with financial statement at the time of making decisions. Some of these techniques are discussed under: Decision Matrix Where there are a number of alternatives available, a decision matrix is used to evaluate all the available alternatives. It includes creation of a table in which all the alternatives are given in the first column and all the factors which affect the decision are mentioned in the first row. The sheet is filled by the user looking into the alternatives and the importance of the factors. The alternative with highest final score is selected. T-Chart A T-chart is prepared when the positive and negative aspect of the alternatives are to be evaluated. It makes sure that at the time of making decision all the positive and negative factors are taken into consideration. Decision Tree It is a graphical method which involves considering each action involved in decision making and its expected outcome. Pareto analysis When the decision making involves making a large number of decisions, Pareto analysis is used. It is helpful in determining which decision will have greatest impact. The priority is given to the one having greatest impact. Conjoint Analysis This method is used in determining the preference of customers when they make decisions. STAND-ALONE PROJECT Q2. Do you have any recommendations to make? GM is smart in financial decision making as it includes all the tools and techniques. Then also the company should be careful and should pay more emphasis on its decision making process. The 2009 crisis prevailed due to poor decision making by its managers. For making more effective decisions the company shall consult some good consultancies and inculcate their views in decisions. References Mechler, G. C. (2009) Manufacturing and Cost Analysis for Aluminum and Copper Die Cast Induction Motors for GM's Powertrain and R&D Divisions. Retrieved from http://msl.mit.edu/theses/Mechler_GC-thesis.pdf Solan A. P. My Years with General Motors (pg. 178-183). Retrieved from https://books.google.as/books? id=_uFqBgAAQBAJ&pg=PA180&lpg=PA180&dq=cost+classification+of+ %22general+motors %22&source=bl&ots=0HOGAWgWox&sig=d07LuAuxyooCsOOHsFlxsoUVs6s&hl=en &sa=X&ved=0CD8Q6AEwB2oVChMIiZfmt7fxgIVA5mCh0LRgd7#v=onepage&q=cost%20classification%20of%20%22general %20motors%22&f=false Whiston, D. (July 23, 2015) GM is finally on the verge of becoming the automaker it should be. STAND-ALONE PROJECT Retrieved from http://analysisreport.morningstar.com/stock/research?t=GM®ion=USA&culture=enUS&productcode=MLE Anderson, S. (1995). A framework for assessing cost management system changes: The case of activity based costing implementation at General Motors, 1986-1993. Retrieved from http://maaw.info/ArticleSummaries/ArtSumAnderson95.htm Muller, J. (May 16, 2015) GM Says Facebook Ads Don't Work, Pulls $10 Million Account. Retrieved from http://www.forbes.com/sites/joannmuller/2012/05/15/gm-says-facebookads-dont-work-pulls-10-million-account/ Robb, R. (2009) Debt and Decision Making at General Motors. Retrieved from http://www.forbes.com/2009/06/03/bailout-recession-shares-opinions-contributors-gmhobbit.html http://www.gm.com/company/aboutGM/our_company.html http://www.gm.com/content/dam/gmcom/COMPANY/Investors/Stockholder_Information/ PDFs/2014_GM_Annual_Report.pdf http://www.accountingformanagement.org/what-is-job-order-costing/ http://industrialeducation.blogspot.in/2008/10/hbs-executive-decision-making-at.html