Question
Ten years ago, Ann and Marie purchased a group of wellness centers that are located in several cities. Ann had a 60% interest and Marie
Ten years ago, Ann and Marie purchased a group of wellness centers that are located in several cities. Ann had a 60% interest and Marie 40%. Two years ago, Marie decided to sell her complete interest in all the wellness centers to John. Ann serves as CEO delegating the day to day operations to John who is the VP of Operations. John has two direct reports, Jamie and Gary. Jamie, who has been with the company for many years is responsible for the Wrentham, Milford and Franklin locations. To help her with her work load, she has an assistant, Tim, who does a lot of the day-to-day work. Gary, is responsible for the Portland and Stamford locations and has an assistant, Jenny. Neither Tim nor Jenny have anyone working for them.
Based on the current executive compensation plan, managers can earn a bonus based on meeting a having a positive residual income. At this point, Ann is proposing a change in the executive compensation to have bonuses computed based on profit. To aid her in this analysis Ann asked an accountant to summarize key financial results from the prior year as shown below:
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| Wrentham | Milford | Franklin | Portland | Stamford |
| Revenue | $850,000 | $500,000 | $400,000 | $1,050,000 | $900,000 |
| Net operating income | $51,000 | $60,000 | $40,000 | $84,000 | $60,000 |
| Average operating assets | $425,000 | $300,000 | $250,000 | $525,000 | $400,000 |
| Stockholders equity | $361,250 | $255,000 | $212,500 | $446,250 | $340,000 |
| Residual income (loss) | ($8,500) | ? | ? | ? | ? |
| Margin | ? | ? | ? | ? | ? |
| Turnover | ? | ? | ? | ? | ? |
| ROI | ? | ? | ? | ? | ? |
| RI | ? | ? | ? | ? | ? |
Answer each of the following questions associated with the information provided. In answering the numerical questions round your final answer to at least two decimal points. For example, a margin of 10.4115% would be 10.41%. A turnover of 3.3621 would be 3.36.
| 7. | Wrentham Margin is |
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| 8. | Wrentham Turnover is |
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| 9. | Milford Margin is |
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| 10. | Milford Turnover is |
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| 11. | Franklin Margin is |
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| 12 | Franklin Residual Income is |
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| 13. | Stamford Margin is |
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| 14. | Stamford Residual Income is |
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| 15. | Portland Margin is |
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| 16. | Portland Turnover is |
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1. How would you classify each location in terms of type of decentralized unit (cost, profit, investment) according to the current (not proposed) plan?
a. Cost center b. Profit Center c. Investment d. Revenue
2. How would you classify each location in terms of type of decentralized unit (cost, profit, investment) according to Anns proposed plan?
a. Cost center b. Profit Center c. Investment d. Revenue
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Advanced Quality Auditing An Auditors Review Of Risk Management Lean Improvement And Data Analysis
Authors: Lance B Coleman
1st Edition
163694082X, 978-1636940823
