Central Adventures

Fatima Hopkins, the CEO of Central Adventures, is having difficulties with all three of her top management level employees. With one manager making questionable decisions, another threatening to leave, and the third likely ‘in the red’, Fatima is hoping there is a simple answer to all her difficulties. She is asking you (her accountant) for some advice on how to proceed.

Central Adventures owns and operates three amusement parks in Michigan: Funland, Waterworld, and Treetops. Central Adventures has a decentralized organizational structure, where each park is run as an investment center. Park managers meet with the CEO at least once annually to review their performance, where each park manager’s performance is measured by their park’s return on investment (ROI). The park manager then receives a bonus equal to 10% of their base salary for every ROI percentage point above the cost of capital.

Fatima’s first difficulty is with the Funland park. Funland is an outdoor theme park, with twelve roller coaster rides and several other attractions. This park has first opened 1965, and most of the rides have been in operation for 20+ years. Attendance at this park has been relatively stable over the past ten years. The park manager of Funland, Janet Lieberman, recently shared with Fatima a proposal to replace one of their older rides with a new roller coaster, a hybrid steel and wood roller coaster with a 90 degree, 200 foot drop and three inversions. The proposal indicated that the ride would cost $8,000,000 with an estimated life of 20 years. In addition, this new style of coaster would require additional maintenance and insurance, costing $125,000 each year. However, it projected that this new attraction would boost attendance, earning the park an additional $1,190,000 per year in revenues. Janet ultimately decided not to invest in this new attraction. Fatima (doing a quick mental calculation) saw that the investment had a payback period of eight years—much shorter than the life of the roller coaster—and is perplexed at Janet’s decision.

The second dilemma concerns the Waterworld park. Waterworld is an indoor water park, operating year-round. Run by park manager David Copperfield, Waterworld was built in 2016 and has increased attendance by 20% every year since. David recently sent you an email complaining that, based on the current bonus payout schedule, Janet Lieberman’s bonus last year was significantly higher than his. He points to the increasing attendance, and says that his park is being punished for having opened so recently (his park assets are much more recent than the roller coasters at Funland). He currently has an employment offer from another company at the same base pay rate, which he says he will accept if his performance is not appropriately acknowledged. Fatima needs to look at the relative performance across parks to determine how to proceed with David.

Central Treetops includes a high ropes course and has a series of ziplines that criss-cross over the Chippewa River. For many years, it was a popular venue for corporate team-building activities, so it is equipped with a main indoor facility with cafeteria and overnight guest rooms. This park has lost popularity in recent years, and has been ‘in the red’ for the past two years. If the park is not profitable this year, you will need to decide whether to close it - permanently. Included in the ‘Fixed COGS’ for Treetops is a $86,000 mortgage payment on the land and 9,351,510closed. Incidentally, you recently had a conversation with the regional head of the YMCA, who would like to open a summer camp in the central Michigan region. If you decided to close Treetops, you are fairly certain that you could lease that land to the YMCA for $250,000 annually.

A partial report of this year’s financial results for Central Adventures shows the following:

The ‘Selling and administrative costs’ are all incurred directly by each park, and are determined at the beginning of each year (that is, they do not change with the number of tickets sold). In addition to the information above, there are $2,542,920 in corporate costs, which are currently allocated evenly between the three parks. These costs are primarily due to employee benefits costs, which are billed at the corporate level. If the Treetops park is closed, the allocated corporate costs would decrease by $12,000. Central Adventures has a cost of capital of 12 percent (and Fatima uses the cost of capital as their required rate of return) and are subject to 18% income taxes.

Fatima needs to evaluate this year’s performance results before she can make any decisions. Is David’s complaint about the performance evaluation metrics valid? Is that also affecting management decisions in the form of Janet’s rejection of the proposed new rollercoaster? And is the company better off without Treetops? She sets off to the company accountant’s office to help get some answers.

Required:

Write your response in the form of a 1-2 page memo to Fatima Hopkins, from the perspective of the company accountant. Be sure to include all your financial analyses, clearly showing your calculations, to support your conclusions. Be sure to include the following points in your memo, and provide the appropriate financial analysis(es) to support your conclusions.

a.     Create a segmented income statement for Central Adventures.

b.     Calculate the current annual ROI, residual income and EVA for the three parks.

c.     Evaluate Janet Lieberman’s (the Funland park manager) decision. Explain why it was/was not in Central Adventure’s overall best interest for Funland to reject the new rollercoaster.

Tombro Industries is in the process of automating one of its plants and developing a flexible manufacturing system. The company is finding it necessary to make many changes in operating procedures. Progress has been slow, particularly in trying to develop new performance measures for the factory.

In an effort to evaluate performance and determine where improvements can be made, management has gathered the following data relating to activities over the last four months:

The president has read in industry journals that throughput time, MCE, and delivery cycle time are important measures of performance, but no one is sure how they are computed. You have been asked to assist the company, and you have gathered the following data relating to these measures:

Required:

1-a. Compute the throughput time for each month.

1-b. Compute the manufacturing cycle efficiency (MCE) for each month.

1-c. Compute the delivery cycle time for each month.

3-a. Refer to the inspection time, process time, and so forth, given for month 4. Assume that in month 5 the inspection time, process time, and so forth, are the same as for month 4, except that the company is able to completely eliminate the queue time during production using Lean Production. Compute the new throughput time and MCE.

3-b. Refer to the inspection time, process time, and so forth, given for month 4. Assume that in month 6 the inspection time, process time, and so forth, are the same as in month 4, except that the company is able to eliminate both the queue time during production and the inspection time using Lean Production. Compute the new throughput time and MCE.

Tombro Industries is in the process of automating one of its plants and developing a flexible manufacturing system. The company is finding it necessary to make many changes in operating procedures. Progress has been slow, particularly in trying to develop new performance measures for the factory.

In an effort to evaluate performance and determine where improvements can be made, management has gathered the following data relating to activities over the last four months:

The president has read in industry journals that throughput time, MCE, and delivery cycle time are important measures of performance, but no one is sure how they are computed. You have been asked to assist the company, and you have gathered the following data relating to these measures:

Required:

1-a. Compute the throughput time for each month.

1-b. Compute the manufacturing cycle efficiency (MCE) for each month.

1-c. Compute the delivery cycle time for each month.

3-a. Refer to the inspection time, process time, and so forth, given for month 4. Assume that in month 5 the inspection time, process time, and so forth, are the same as for month 4, except that the company is able to completely eliminate the queue time during production using Lean Production. Compute the new throughput time and MCE.

3-b. Refer to the inspection time, process time, and so forth, given for month 4. Assume that in month 6 the inspection time, process time, and so forth, are the same as in month 4, except that the company is able to eliminate both the queue time during production and the inspection time using Lean Production. Compute the new throughput time and MCE.

Tombro Industries is in the process of automating one of its plants and developing a flexible manufacturing system. The company is finding it necessary to make many changes in operating procedures. Progress has been slow, particularly in trying to develop new performance measures for the factory.

In an effort to evaluate performance and determine where improvements can be made, management has gathered the following data relating to activities over the last four months:

The president has read in industry journals that throughput time, MCE, and delivery cycle time are important measures of performance, but no one is sure how they are computed. You have been asked to assist the company, and you have gathered the following data relating to these measures:

Tombro Industries is in the process of automating one of its plants and developing a flexible manufacturing system. The company is finding it necessary to make many changes in operating procedures. Progress has been slow, particularly in trying to develop new performance measures for the factory.

In an effort to evaluate performance and determine where improvements can be made, management has gathered the following data relating to activities over the last four months:

The president has read in industry journals that throughput time, MCE, and delivery cycle time are important measures of performance, but no one is sure how they are computed. You have been asked to assist the company, and you have gathered the following data relating to these measures:

Required:

1-a. Compute the throughput time for each month.

1-b. Compute the manufacturing cycle efficiency (MCE) for each month.

1-c. Compute the delivery cycle time for each month.

3-a. Refer to the inspection time, process time, and so forth, given for month 4. Assume that in month 5 the inspection time, process time, and so forth, are the same as for month 4, except that the company is able to completely eliminate the queue time during production using Lean Production. Compute the new throughput time and MCE.

3-b. Refer to the inspection time, process time, and so forth, given for month 4. Assume that in month 6 the inspection time, process time, and so forth, are the same as in month 4, except that the company is able to eliminate both the queue time during production and the inspection time using Lean Production. Compute the new throughput time and MCE.

A regional express delivery service company recently conducted a study to investigate the relationship between the cost of shipping a package ($), the package weight (in pound) and the distance shipped (in miles). Twenty packages were randomly selected from among the large number received for shipment, and a detailed analysis of the shipping cost was conducted for each package.

1. Use the F test to determine the overall significance of the regression relationship for the expanded model. What is the conclusion at the 0.01 level of significance?

2. Use the t test to determine the significance of each independent variable. What is the conclusion for each test at the 0.01 level of significance?  

Suppose that a bicyclist is traveling at an energetic 20 mph on a flat road, and the combination of rolling resistance and air drag is 10 pounds. (48 pts, 8 pts each part) a. What is the rate at which the bicyclist is doing useful work at this speed, in watts and horsepower? b. Measurements indicate that this performance requires conversion of food energy at a rate of 8 kcal/min. What is the first-law efficiency of the cyclist as a machine in converting energy to work at 20 mph? Assume that in a sedentary state, the rate of energy consumed by the cyclist’s body is 1.5 kcal/min. c. What is the bicyclist’s “miles per gallon” equivalent if the energy in the extra food consumed to power the bicycle is equated to the energy in gasoline? d. If the needed energy is obtained from energy bars containing 200 Calories and costing $1.50 each, what is the bicyclist’s fuel cost in cents per mile? What is the fuel cost in cents per mile for a car that gets 20 mpg using $3 per gallon gasoline? e. What are the CO2 emissions per mile for the bicyclist and the car? Consider only what is being emitted as they proceed. Do not include lifecycle considerations, and for the bicyclist only include the CO2 associated with propulsion. For the bicyclist, assume the energy bar consists of carbohydrates with a simplified molecular formula of CH2O and an energy content of 4 kcal/g. For the car, assume the gasoline consists of entirely of iso-octane, C8H18, with a specific gravity of 0.7 and an energy content of 45 MJ/kg. f. Without doing a calculation, name at least three elements of a lifecycle CO2 analysis that would change the emissions per mile calculation above, and whether they would tend to increase or decrease the value for each of the transportation modes.

Once every weekend, I go out for breakfast – usually at Sweet Paris, Mess, or First Watch. However, my decision usually depends on where I ate in the prior week. Basically, my breakfast eating habits are a Markov process and I’ve summarized the transition matrix below.

Sweet Paris Mess First Watch

Sweet Paris 0.3 0.3 0.4

Mess 0.6 0.4   0

First Watch 0.3 0.7 0

Sweet Paris has a policy where you earn a free crepe after 16 visits – thus I might be interested in the 16th passage time – how long it would take me to visit 16 times and earn a free crepe.

As it turns out, I already have 15 visits. I only need one more to earn my free crepe!!! I.e., I’m interested in my first passage to Sweet Paris.

1. (a) If I most recently ate at Sweet Paris, determine the probability I will earn a free crepe in 1 week, 2 weeks, 3 weeks, and 4 weeks.

2. (b) If I most recently ate at Mess, determine the probability I will earn a free crepe in 1 week, 2 weeks, 3 weeks, and 4 weeks.

3. (c) If I most recently ate at First Watch, determine the probability I will earn a free crepe in 1 week, 2 weeks, 3 weeks, and 4 weeks.

A theater has 500 seats, divided into orchestra, main, and balcony seating. Orchestra seats sell for $50, main seats for $35, and balcony seats for $25. If all the seats are sold, the gross revenue to the theater is $17,100. If all the main and balcony seats are sold, but only half the orchestra seats are sold, the gross revenue is $14,600. How many balcony seats are there?

Question B3

Recently the employees of Ming News Ltd received a letter from the director of operations, Alex, explaining that a new production plant would be built in the New Bay Area. The letter also stated that about 80% of the employees from the current office would be transferred to the new plant and if employees wanted to volunteer for the transfer, they could inform the human resource manager. Tom, a production trainee, first went to David, the production manager, who had already volunteered to transfer, to discuss with him the benefit and career opportunity at the new plant. David shared with Tom about Alex’s new model of operation in the new office. It will take care of employee satisfaction. The new plant will take care to ensure employees have the best conditions to perform, ranging from free snack bars, sports facilities, a medical clinic, and so on.

Which dimension of organisational culture is Ming News Ltd going to emphasise in the new plant?

Question B4

ABC is a large hotel group with four hotels in the city. Last month, there was an outbreak of a disease in one of the hotels. About ten guests were sick and sent to hospitals for treatment. Luckily, there was no fatal case. Later, it was confirmed that the cleaning work of that hotel had not been done well. The government also investigated the incident that happened in this hotel. The hotel had to close for three days for throughout cleaning work before it could re-open to receive new guests. The hotel appointed Susan Wong, the assistant executive manager, to follow up the case to resolve various problems. She first supervised the cleaning work. Also, she had to investigate the causes leading to the incident and found out who were responsible for such outbreak. Lastly, she would make recommendations to top management on how to avoid the occurrence of similar problem in future.

Based on the above case, identify the Mintzberg's specific managerial role (other than the monitor role) performed by Susan Wong in managing the incident in this hotel group.

Question B5

Google has made some tremendous efforts in going green by slashing their energy usage and supporting green energy projects. For instance, Google has constructed one of the world’s most energy efficient data centers and continuously campaigns for the need for energy conservation and the use of renewable energy sources as well as clean energy products. Google has supported and funded green energy projects by buying and installing numerous windmills and solar panels. It looks for a way to protect the earth’s natural resources.

Based on the above case, identify the approach that Google has applied when going green.(2marks)