Space Star 

Case

Carine Khoury
John Chakardemian 
Wajih Tabbara
CC-07 Management Control Paul Ganimeh
Prof. Carla MENDOZA Jean Saad
Motor Division – Re-allocation of Cost
Category Amount Nos of units U.Price
External sales 1,125,000 € 2500 450 €
Internal sales 268,240 € 700 383.2 €
Total sales 1,393,240 €
Purchasing of components 480,000 € 32000 15 €
Labor cost  450,000 €
Energy cost 52,500 €
Remuneration /sales rep 54,500 €
Rental ( Motor div) 80,000 €
Depreciation ( Motors Div) 100,000 €
Advertising campaing Motors div 112,500 €
Allocation of head office 0€
Total cost   1,329,500 €
Total cost / unit produced 415 €
Result ( Operating profit ) 63,740 €
Operating profit margin  4.57%
Satellite Division - Re-allocation of Cost
Category Amount Nos of units U.Price
External sales 4,320,000 € 2700 1,600 €
Internal sales 0€ 0
Total sales 4,320,000 €
Purchasing of motors ( external) 900,000 € 2000 450 €
Purchasing of motors ( internal) 268,240 € 700 383.2 €
Purchasing of components 810,000 € 54000 15 €
Labor cost  850,000 €
Energy cost 200,000 €
Remuneration /sales rep 119,500 €
Rental ( Satellite div) 130,000 €
Depreciation ( Satellite Div) 260,000 €
Advertising campaign Satellite Div 360,000 €
Allocation of head office 0€
Total cost   3,897,740 €
Total cost / unit produced 1,443.6 €
Result ( Operating profit ) 422,260 €
Operating profit margin  9.77%
 NOA Calculation
NOA calculations Motors division Satellite division 
Fixed Asset average value 950,000 € 2,470,000 €
Working capital 
Inventory 400 450
Full cost of inventory items 415.5 € 1,443.6 €
Inventory value 166,187.50 € 649,623.33 €
Accounts receivable 
days account receivable 30 45
Accounts receivable turnover 12.17 8.11
Accounts receivables 114,513 € 532,603 €
Components &
Accounts Payable Components Externally bought motors
internal transfers
Days accounts payable 30 30 60
Accounts payable turnover 12.2 12.2 6.1
Purchases 480,000 € 1,078,240 € 900,000 €
Accounts payable 39,452.05 € 88,622.47 € 147,945.21 €
Accounts payable / BU 39,452.05 € 236,567.67 €
Working capital  241,248.32 € 945,658.40 €
NOA= Fixed assets +WC 1,191,248.32 € 3,415,658.40 €
 Unit Performance Indicators
Units performance indicators Motors division Satellite division 

Operating profit  63,740.00 € 422,260.00 €

WACC 13.00% 13.00%

ROI  5.35% 12.36%

RI -91,122 € -21,776 €

Operating profit Margin 4.57% 9.77%

Operating Asset turnover  1.17 1.26

Return on Investment
 Analysis
 ROI is lower than the WACC; especially Motor Division is showing very low operating asset turnover
which means either their operation is not efficient or Market share is lower than capacity produced
 Operating profit margin is low; especially Motor Division it is 4.5%:
 Variable Cost is high:
 Advertising & Marketing is increasing the cost of Motors without giving a significant added value and is not being considered in the
internal sales for SD
 Labor cost is high as percentage of sales (30% MD & 20% SD), this means there is inefficiency in operation
 Narrow profit margin per unit especially for Motors 
 Components cost is almost half of the fixed cost
 13% WACC is very high which is close to the cost of Equity required by the shareholders
 Using Appendix 1, we conclude that the sales target wasn't achieved in both divisions
 Sattelite Division sold at lower price than the forecasted and achieved lesser sales volume
 Both divisions are holding a big inventory which is increasing their working capital
 Recommendations
 Increase the inventory turnover and reduce the inventory storage items
 SD has to buy Motors exclusively from internal MD with a lower price from the market but with
adjusted internal cost (e.g. including the varaible cost and 5% profit)
 Reduce significantly the labor cost in both divisions (e.g. using automation) to become more efficient
and increase profit margin per unit
 Achieve higher volume of sales in SD in light of the reduced selling price compared to the forecast
 Enhance the performance of MD:
 Enlarge capacity of MD beyond the needs of the SD and enahnce the advertising and marketing
 Limit the sales of the MD internally to the SD and consequently eliminate the advertising cost in sales renumaration to
increase the profit margin per unit, and ensure more competitivness in the SD 
 The WACC needs to be reduced either by getting a lower interest rate by the bank, or by getting a
financial loan from the banks instead of equity
 Purchases Department to increase days account payable (e.g. to 60 days)