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Name: Jaquelyn Miciano

Student ID: cuq688

Project 3
December 6, 2016

Part I Maxs Organizational Chart


President and CEO,
Mr. Carter

Investment
Center

`
Chief Financial Officer,
Mr. Reed

Investment
Center

MAX, Inc.

Professional
Services
Division

Industrial
Product
Division

Consumer
Product
Division

Consumer, Industrial and


Professional Services
Division Managers

Production/
Engineering
Department

Executive
Production
Engineer

Marketing
Department

North
Region

Production/
Engineering
Department

Equipment
and Setup
Group

Land
Planning
Service Area

Machine
Run
Group

Glazing and
Finishing
Group

Landscape
Architecture
Service Area

Inspect
-ion
Group

Structural
Architecture
Service Area

Cost
Center

Sales
Manager

South
Region

Packaging
Group

Consulting
Engineering
Service Area

Profit
Center

Revenue
Center

Regional
Supervisors

Revenue
Center

Division
Manager,
Mr. Jones

Cost/
Revenue
Center

Delivery
Group

Production Staff

Service
Managers

Cost/
Revenue
Center

Investment
Center

Name: Jaquelyn Miciano


Student ID: cuq688

Project 3
December 6, 2016

Part II Balance Scorecards


Balance Scorecard for MAX, Inc.

Measure

Increase % of
returns from
products and
services

% Return on Divisions

Target
> 7% per year for
Consumer
> 9% per year for
Industrial
> 12% per year for
Professional Services
Expected ROI that
satisfies the
benchmark for the
investment type for
the company and its
competitors
Above industry
average

Initiative

New projects are vetted


and discussed by the
President and CFO.

Ratio of Expected
Profit over Assets
Employed

Increase profit

Return on Assets
Service Margin

Sales growth

Product/Service Sales
and Revenue Growth

>9% per year

Customer loyalty
New Marketing
Approach

Customer
satisfaction

Customer satisfaction
index

Above competitors
average

Quality of Service

Defective
Product/Service

Number of defected
products and errors in
services

Zero

Quality assurance

Reduce
Production Cycle
Times

# of hours to complete
order

Above standard and


expected time

Find inefficiencies

Service Costs

Cost per Consumer


Product Industrial
Product and
Professional Services

Continuous
Improvement

Managers determining
non-value adding
activities in their
processes

Employee
training &
education

%Employees
completing training

Opportunities for
Improvement

Division Manager/
Employee
Suggestions

Learning &
Growth

Growth and
expansion
through effective
resource
allocation

Customer

Objective

Internal Business Process

Financial

Strategic Theme: Corporate Growth and Expansion, Greater Return on Investments


and Services, Overall Profit Growth

100% year 1
100% year 2

Estimated value of
employee suggestions

CFO reviews
reasonableness of cost
and revenue projections
prior to accepting a
project
New sales programs
Cost reduction plans

Hands-on training from


Managers/ supervisors
Process improvements
to reduce cost

Name: Jaquelyn Miciano


Student ID: cuq688

Project 3
December 6, 2016

Balance Scorecard for Consumer Product Division


Strategic Theme: Greater Return on Investments and Services

Internal Business
Process

Learning &
Growth

Objective
Innovativeness
Employee
turnover
Employee
Satisfaction
Defective
Consumer
Product
Cost of Service

Financial

Customer

Increase
customer base

Sales growth

Measure
%Sales from
New Practices
%Employees
leaving job
Job Satisfaction
Index

Target
Positive growth
from previous year
Below industry
average
Maintain current
level

Initiative
Door-to-door
demonstrations
Allotted sales district to
each sales representative
Assigning Regional Sales
Supervisor

Errors per order

Zero

Cost-saving measures

Continuous
Improvement

Cost-saving measures

Increasing growth
and expansion

Door-to-door
demonstrations

>7% per year

Extract more sales from


consumers

Cost per
Consumer
Product
%Sales per
district or region
Geographic
reach
%Sales and
revenue growth

Customer
retention and
loyalty

Customer
retention rate

Above industry
average

Delivery service quality

Divisional
budgets and
expenditures

Expected
Budget/Expense
vs Actual
Budget/Expense

Continuous
improvement

Cost-cutting strategies

Increase
revenue from
our new project

%Sales
generated from
project

Revenue growth
from project

Door-to-door
demonstration
Advertising cost
reduction

ROI, ROCE

Increase net
income to
generated targeted
returns

New project proposals

Increase sales
growth

Assign each sales


representative to one
district

Higher return
on investment
Increase sales
efficiency

Revenue per
FTE

Name: Jaquelyn Miciano


Student ID: cuq688

Project 3
December 6, 2016

Balance Scorecard for Industrial Product Division


Strategic Theme: Corporate Growth and Expansion, Greater Return on
Investments and Services, Overall Profit Growth
Objective

Target

Employee
Satisfaction

Measure
%Employees
completed
specialized training
Job Satisfaction
Index

Employee turnover
rate

%Employee leaving
job

Below industry
average

Opportunities for
improvement

Employee
suggestions

Value of
employee
proposals

Identifying idle time


Post-sales service

Minimize Defective
Product

#Errors/#Orders

Zero

Maintaining
Product Quality

Employee
Productivity Rate

$Sales/#Employees

Continuous
Improvement

Cost-cutting
strategies

Reduce production
cycle time

Number of hours to
complete an order

120 hours or
15 days

Identifying idle time


Find inefficiencies

100%

Build reputation

Above industry
average

Delivery service
quality
Build reputation
Post-sales services
Cut average
production time
Deliver service
quality
Cut average
production time
Cost-cutting
strategies in
completing and
filling orders

Internal Business
Process

Learning & Growth

Employee training &


education

Financial

Customer

Post-sales service
quality
Customer loyalty

%Customer
contacted after
completing sales
Customer retention
rate

100%
Maintain current
level

Minimize Customer
Complaints

#Complaints/Sales

Zero

Sales growth

%Sales and
revenue growth

>9% per year

Service Profitability

Net Profit Gains

>9% per year

Growth and
expansion

Revenue Growth

Above industry
average

Increase sales
efficiency

Revenue per FTE

Increase sales
growth

Initiative
Drive to increase
operational
efficiency
Not to overwork
employees
Teamwork in
completing
production

Name: Jaquelyn Miciano


Student ID: cuq688

Project 3
December 6, 2016

Balance Scorecard for Professional Services Division

Strategic Theme: Corporate Growth and Expansion, Greater Return on


Investments and Services, Overall Profit Growth
Objective

Measure
%Employees
completed
specialized training

Target

Employee
Satisfaction

Job Satisfaction
Index

Maintain current
level

Employee turnover
rate

%Employee leaving
job

Below industry
average

Opportunities for
improvement

Employee
suggestions

Value of
proposals

Minimize Project
Errors

#Errors/#Project

Zero

Employee
Productivity Rate

$Sales/#Employees

Continuous
Improvement

Determine
inefficiencies

Cost of Service

Cost per Project

Continuous
Improvement

Find inefficiencies

Increase customer
base

%Sales growth

Increasing
growth and
expansion

Customer loyalty

Customer retention
rate

Above industry
average

Customer risk

Profitable
businesses/clients

Maintain current
level

Service Profitability

Net Profit Gains

>9% per year

Revenue Growth

Above industry
average

Financial

Customer

Internal Business
Process

Learning & Growth

Employee training &


education

Growth and
expansion
Customer
Profitability

%Loss customers

100%

Zero

Initiative
Drive to increase
operational
efficiency
Maintain adequate
staffing
requirement
Teamwork in
completing project
Identifying nonvalue adding
activities
Maintaining
Service Quality

Capacity to
perform
environmental
impact studies
Service quality
excellence
Zero Errors
Competitive cost of
service
Deliver service
quality
Identify areas for
improvement
Competitive cost of
service, zero errors

Name: Jaquelyn Miciano


Student ID: cuq688

Project 3
December 6, 2016

Part III Performance Measures


MAX, Inc
Total Assets
Required ROA
Required Income
Income Statement
Sales
Cost of Sales
Gross Margin
Total Expenses
Net Income (before taxes)

Consumer
2001
2002
$ 84,256
$ 91,240
7.00%
7.00%
$ 5,898
$ 6,387

Industrial
2001
2002
$ 70,160
$ 85,557
9.00%
9.00%
$ 6,314
$ 7,700

Professional
2001
2002
$ 37,680
$ 49,460
12.00%
12.00%
$ 4,522
$ 5,935

Total Company
2001
2002
$ 192,096
$ 226,257
8.71%
8.85%
$ 16,734
$ 20,022

$
$
$
$

90,693
(70,603)
20,090
(15,105)

$
$
$
$

89,600
(68,544)
21,056
(12,500)

$
$
$
$

76,500
(58,140)
18,360
(11,240)

$
$
$
$

76,075
(57,437)
18,638
(14,500)

$
$
$
$

45,000
(33,584)
11,416
(7,000)

$
$
$
$

57,000
(42,790)
14,210
(8,490)

$ 212,193
$(162,327)
$ 49,866
$ (33,345)

$ 222,675
$(168,771)
$ 53,904
$ (35,490)

4,985

8,556

7,120

4,138

4,416

5,720

$ 16,521

$ 18,414

Return on Assets (using pre-tax


income)

5.92%

9.38%

10.15%

4.84%

11.72%

11.56%

8.60%

8.14%

Return on Sales (using pre-tax


income)

5.50%

9.55%

9.31%

5.44%

9.81%

10.04%

7.79%

8.27%

22.15%

23.50%

24.00%

24.50%

25.37%

24.93%

23.50%

24.21%

Margin Percentage
Required Income

5,898

6,387

6,314

Residual pre-tax income

(913)

2,169

806

7,700

$ (3,562)

4,522
(106)

$
$

5,935
(215)

$ 16,734

$ 20,022

$ (1,608)

(213)

ROA based on pre-tax income shows each divisions performance and whether the expected returns were met. The expected returns were
predetermined by the CEO where consideration was given to the economic and risk characteristics of the various markets. Returns of 7%, 9%,
and 12% were expected from the Consumer Product, Industrial Product and Professional Service Division. Although the margin percentage of
each division for both years were good, the margin of sales was not enough to cover the total expenses of the each division at certain periods.
During 2001, the Industrial Product Division exceeded their expected return and obtained return on assets of 10.15%. In 2002, Consumer
Product Division exceeded the expected return by obtaining 9.38% return on assets. The company did not obtain the targeted ROA in 2001 and
2002, with a residual pre-tax income of -$213 and -$1,608, respectively.

Name: Jaquelyn Miciano


Student ID: cuq688

Project 3
December 6, 2016

CFO Performance Measure


In measuring the performance of the CFO, the growth of sales and profit levels of each division and the
company as a whole was obtained. To support the notion of a value-creating role, the initiatives that he
reviews should reflect increases in sales or reduction in cost which should overall result in a higher profit
for the company.
Obtaining the increases and decreases in sales and profit reflects the performance on how effective the
projects, strategic initiatives and investments are in achieving the overall goals of corporate growth and
higher returns on investments. The company shows an overall increase in the growth of sales and profit.
However, the increase is only largely contributed by the Professional Services Division.
There is a great opportunity in the Consumer and Industrial product division to be able to increase their
sales and profit to be able to support the companys strategic goals of growth and expansions and
overall more profitable.

Growth Performance of MAX, Inc.


from 2001 to 2002
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$$(2,000)
$(4,000)

Consumer

Industrial

Professional

Company

Sales Growth

$(1,093)

$(425)

$12,000

$10,482

Profit Growth

$3,571

$(2,982)

$1,304

$7,932

Name: Jaquelyn Miciano


Student ID: cuq688

Project 3
December 6, 2016

Consumer Product Division Manager


The sales performance of the consumer product division can be measured from the expected sales
versus the actual sales generated. This measure would reflect whether the regional groups were able to
attain their targeted sales for the year. The North region exceeded their expected sales by $3,000 while
the South Region fell short by $2,400.

Consumer Product Sales Performance


Expected Sales

Actual Sales

$48,000

$41,600

$45,000

$44,000

North Region

South Region

Industrial Product Division Manager


Standard
Actual
hours allowed hours used
Set up time
Machine run time
Glazing and
finishing
Inspection time
Packaging
Delivery Time
Total

Over/Under
time

Efficiency rate

24
36
16

30
38
12

6.0
2.0
-4.0

Dollar effect on
costs
(if wage=$20/hour)
80%
$
120
95%
$
40
133%
$
(80)

4
8
32
120

3.5
6
36
125.5

-0.5
-2.0
4.0
5.5

114%
133%
89%
96%

$
$
$
$

(10)
(40)
80
110

The overall efficiency of the division is 96%, where actual hours are 5.5 hours over the standard time. To
determine the cost savings for each process, it is assumed that the wage rate per hour is $20. Using this
assumption, the dollar effect on cost was calculated for each of the process. The setup time group
showed to be the most inefficient with 80% efficiency rate and dollar cost savings of -$120 while the
glazing and finishing group showed to be the most cost-efficient with 133% efficiency rate and $80 of
cost savings. The division filled 45,000 orders during the year.

Name: Jaquelyn Miciano


Student ID: cuq688

Project 3
December 6, 2016

Professional Services Division Manager


The return on sales shows the operational profit margin of the division to show how efficient the overall
division is in terms of generating profits. This shows the actual percentage of money that the division
generates on its revenues in 2001 and 2002. The return on sales of the division shows an upward trend.

Return on Sales (using pre-tax income)


10.10%
10.05%
10.00%
9.95%
9.90%
9.85%
9.80%
9.75%
9.70%
Return on Sales (using pre-tax
income)

2001

2002

9.81%

10.04%

The margin percentage shows that the trend of the divisions profitability is declining. Given this trend,
the division manager should determine key factors and causes of this downward trend. The margin
percentage shows how the division maintains its cost structure to gain the proper amount of sales.
Division Manager must understand the reasons of the decline to be able to address the issues with the
different groups within the division.

Margin Percentage
25.50%
25.40%
25.30%
25.20%
25.10%
25.00%
24.90%
24.80%
24.70%
Margin Percentage

2001

2002

25.37%

24.93%

Name: Jaquelyn Miciano


Student ID: cuq688

Project 3
December 6, 2016

Part IV - Financial and Non-Financial measures of each division

Division
Consumer Product

Industrial Product

Professional Services
Division
Consumer Product

Industrial Product

Professional Services

Activity Type
Sales Margin
Compensation Cost Contribution
Advertising Cost Contribution
Operating Cost Efficiency
Inventory Turnover
Expenditure over Requirement
Operating Ratio
Selling Price Variance
Cost of Service
Sales Growth
Activity Type
Sales Representative Performance
Daily Generated Sales
Inventory Period
Setup
Labor Efficiency
Lead Time Efficiency
Lateness index
Labor Rate
Productivity
Delivery performance
Quality of Service
Error Rate
Growth and Expansion
New project launches

Financial Performance Measure


Gross Margin/Sales
Salary Expense/Total Expense
Advertising Expense/Total Expense
Operating Expense/Net Sales
Sales/Average Inventory
Required Expenditure/Actual Expenditure
Operating Cost/Net Sales
(Actual Price Budgeted Price) x Actual unit sales
Professional Service Cost/Project or Service Valuation
Increase or Decrease in Sales/Previous Sales
Non-Financial Performance Measure
Number of Sales/Representative
Generated Sales/Total houses visited
Average number of Days Inventory is held
Total setup time/Number of setups
Direct Labor hours/Quantity produced
Process time/Total time
#Late Deliveries/Total Deliveries
Labor time/Units produced
Process time/Non-value added time
#On Time Deliveries/#Total Deliveries
Speed of delivering service (Expected vs. Actual)
Completeness of services delivered
#New market segments, #new acquisitions
#of new professional services introduced

Name: Jaquelyn Miciano


Student ID: cuq688

Project 3
December 6, 2016

Part V Expected Rate of Return on the proposed project


Project Asset Investment

Number of Units Projected


Cash need for operations
Accounts receivable to be financed
Inventories
Plant and equipment
Total Assets to be employed

Strong
Economy
100,000 units
$
200,000
$
500,000
$
800,000
$ 1,500,000
$ 3,000,000

Operating cost data:


Variable expense per unit
Total annual fixed expenses

$
$

11
150,000

Operating income data:


Selling price per unit

15

State of
the
economy

Projected
Sales in
Units

Strong
100,000
economy
Stagnant
75,000
economy
Depression 60,000

Expected Expected
Probability
Sales
Revenue

Stagnant
Economy
75,000 units
$
150,000
$
375,000
$
600,000
$ 1,125,000
$ 2,250,000

Expected
Variable
Cost

Depression
60,000 units
$ 120,000
$ 300,000
$ 480,000
$ 900,000
$ 1,800,000

Total
Expected
Assets
Profit
Employed

Return on
Capital
Employed
(ROCE)

60%

60,000

900,000

660,000

240,000

3,000,000 8.00%

25%

18,750

281,250

206,250

75,000

2,250,000 3.33%

15%

9,000

135,000

99,000

36,000

1,800,000 2.00%

State of the
economy

Probability Expected Profit

Strong economy
Stagnant economy
Depression

60%
25%
15%

240,000
75,000
36,000
Total
Expected ROI

Expected
Returns
144,000
18,750
5,400
168,150
6.39%

Expected Total
Assets Employed
1,800,000
562,500
270,000
2,632,500

Based on the calculated Return on Expected Profit for each of the probable scenarios of the economic
condition, the expected rate of return is $168,150 while the expected total asset to be employed is
$2.63 million. The expected return on investment for the new project, 6.39%, is less than the expected
return for the Consumer Product Division which is 7%. Mr. Ikes proposed investment will not be
approved given that it will not generate enough returns.