CAP Case History Solve

CAP

CASE HITORY:

Cundy Aquatic pursuits (CAP) were founded in 1978 by its managing director, Jody Cundy. CAP owns and operates a chain of Aqua Parks in the country of Lizland. Each Aqua Park has a number of large indoor and outdoor swimming pools together with a range of attraction such as water-slides and surfing rides. Jody Cundy firmly believes that growth in the number of Aqua Parks is the key to success for CAP. Jody Cundy owns 55% of ordinary share capital of CAP.

1. Evaluate the financial performance of CAP

(JC) is facing a difficulty in managing the profitability in the Lizland parks.

• Turnover has been falling since 2007, in the last year by 9.1 from 2008. It is now $4.52m per parks from $5.89m per park in 2006.

Calculation:

Turnover = ((280-308)/308)*100% = (9.1%)

2006 2009

Turnover per parks = 330/56 = 5.89 280/62=4.52

• Profit has been fallen from $60m in 2006 to $40m in 2009. The Profit per park fall to $0.65m (40m/62) in 2009 from $1.07m (60/56) in 2006.

• Operating cost has also fallen from $270m in 2006 to $240 in 2009.

• Net margins also fallen down from 18% in 2006 to 14% in 2009.

Calculation

2006 2009

Net profit margin = 60/330 = 18% 40/280 = 14%

Before making a decision to move in Robland, JC should consider alternative options

• He could review revenue sources in Lizland, from existing sites and new ones, rather than expanding overseas at a huge cost of $120m.
• He may be able to squeeze more cost savings out of existing operations given operating costs have increased from 81.8% of turnover to 85.7% from 2006 to 2009.

Calculation

2006 2009

Operating cost of turnover = (270/330)*100% = 81.8% (240/280)*100% = 85.7%

• may be difficult to keep up this level of dividend in future years if profits continuous falls.

• Liquidity is also concern as a bank balance of $10m at 2009 is insufficient to meet trade and other payables due at the date of $15m.

• The low PE ratio compared with industry average suggests the market has concerns over future prospects for CAP.

2. Financial considerations

JC will need to guarantee finance of $120m to found the new parks, starting Dec 2009. It’s unlikely all of the parks will be built in 2009.

JC will need to raise funds by loan or share issue:

• He must also consider how existing shareholders will see the expansion and if they will expect their level of dividend to be maintained.

• If he agrees a loan then he may have to fulfill covenants relating to performance and will have to repay the loan and interest.

• A third possibility is for CAP to obtain some funding from the Govt. in Robland given that he will be investing in the company, bringing in revenue and probably jobs and tourism.

Economic consideration

• JC should obtain more information on these factors as a minimum before he decides to invest in Robland.

• Govt. Policy may favor industry investment rather than investment in pleasure parks.

• CAP needs to plan for exchange rate in fluctuation if it is going to remits funds. CAP should therefore decide whether to hedge for any fluctuation between the Rob and CAP’s own currency.

Social Consideration

• The market research indicated reasonable future prospects for investment in Robland Because Robland is a Developing country.

• Some countries have traditions of afternoon rest which would not suit an all-day amusement park. This affects the operations of the parks.

• JC needs to seek local professional advice on these issues, including rates of pay and legal responsibilities in employment.

Jawwad

RESPONSIBILITY AND CONTROLLABILITY

CASE HISTORY:

Responsibility accounting is based on the application of the controllability principle.

1. Responsibility accounting is a system of accounting that segregates revenues and costs into areas of responsibility in order to monitor and assess the performance of each part of the organization. The controllability principles refer to the degree of influence that the manager of a responsibility center has over individual revenues and costs. The basis for the principle is that managers of responsibility centers should only be held accountable for costs and revenues over which they have some influence.

The application of the controllability principle is difficult in practice for the following reasons.

1. It is not always clear which items are controllable and which are not controllable.
2. Even when an item has been identified as controllable it might be influenced by more than one responsibility center manager.
3. Following the controllable principle very closely might exclude partially-controllable items from the planning and control process.
4. The exclusion of non controllable items from the reporting process can lead managers to view certain items as free services and thus lead to inefficient usage of the service by responsibility managers.
5. If responsibility centers managers receives no charge at all for non-controllable items such as head office or central costs there will be no incentives for them to contribute to the reduction of the costs involved.
6. Incorrect classification of controllable and non-controllable items can lead to serious problems with motivation and morale if managers feel that they are not really able to influence an item that has been classified as controllable.
7. The short term focus of most performance reports means that a manager may be held responsible for inefficiencies and problems caused by previous managers.

2. A number of steps can be taken to overcome the difficulties inherent in the practical application of the controllable principle.

1. Report on the non-controllable items as well as the controllable items relating to each responsibility center but segregate the controllable and non-controllable items. The main advantage gained is that responsibility center managers will not be demotivated by being made responsible for items over which they have no control. Consulting with responsibility center managers helps to form a more realistic view as to which items can be classified as controllable.
2. When performance is motivated by comparison with a target ensure that the target is not ensure that the target is not ensure is not influenced by non-controllable factors.
3. If a standard costing system is in operation any non controllable planning variances should be reported separately. The controllable principle can be then applied by reporting separately the more controllable operational variances.
4. Use benchmarking to assess the relative performance of comparable responsibility centers. The comparison can be made either with in the organisation, if two or more comparable responsibility centers exist.as long as the responsibility centers are subject to the same environmental and operational conditions they would be affected to same extent by controllable and non controllable factors.

1. An engineered approach to setting financial targets is used where there is a relatively predictable and stable relationship between inputs and outputs . The relationship is established from the results of engineered studies which allow managers to determine the inputs required for a given output.
2. An historical approach to setting financial targets basses targets on what has been achieved in the past. Past results might be used as a starting point for preparing the targets and adjustments are then made for any known changes that will occur in the future.
3. A negotiated approach to setting financial targets involves the process of negotiation between the managers of responsibility centers and their superiors.

A major disadvantage of the approach is that those responsibility center managers who are skilled at negotiated will be able to establish an easily achievable target for their centre.

Fuzail

EMA

Overview:

Drayton manages twenty factories, from which manufactures and distributes their products. The products are subject to market forces and the prices and quality was decided to be based on daily basis. All the decisions of operating and managerial factory are controlled by a managing and finance directors discuss the results of the factory and decide a new plan for the betterment of the factory and value the meeting for discussing the problem they can face. The senior executives of Drayton also ensure that the overall corporate strategy is maintained.

Introduction of the case:

Drayton, who operates twenty factories and manufactures and distribute their products from the surroundings of the region, Both, the managers and directors discuss the result and make plan for the factory and value meeting for discussing the problems they can face. The senior executives has been seeking for the alternative plans since 2 weeks because he wants to avoid the cost of travelling which was rising rapidly and the directors were very far from the factories to take decisions. For this result a new email system has been put into action.

Problems of email in Drayton:

The new email system was not fulfilling its purpose of replacing travel and face to face meetings. The possible reasons are the following.

• Nature of the message.
• Time consumption.
• Not clear
• Delivery problems.
• Overloaded information.
• Data sent is not accurate.
• Security

Nature of the message:

Directors wish to discuss the problems whereas the email is best suited to short messages. Immediate of information is possible but it takes time to type a message on the keyboard especially if the directors and not particularly competent typist.

Time consumption:

It will take time to make directors understand what problem the factory is facing. Because 50% of the meaning the directors are able to impart each other face to face conversation is non verbal so the meaning is conveyed by body language and tone of voice. So in this case the directors will consume time with understanding the meaning of the problems.

Not clear:

Directors tries to find out he problems and make plans for the factory but through email they can be misunderstood from the data of the message from one to another because sometimes the meaning of delivering data can be take with different criteria’s or thoughts which can cause misunderstandings.

Delivery problems:

While working with email system it doesn’t mean that mail or message will be delivered to another directors or not, sometimes internet can also creates problems in delivering the data or messages. So delivery is not guaranteed that is the biggest issue that the directors held meeting discuss face to face.

Overloaded information:

Large amount of emails are likely to be received each day so directors will quickly find themselves suffering from information overloaded. They will either spend much of their time in emailing or skip over much of the mails they receive and might be will miss important points as well.

Accuracy information:

Director’s work is to discuss and make plans for the factory. Through emails it doesn’t mean that they will get accurate information. They might face problems in receiving it of understanding it as well so there is low accuracy of information through email.

Security:

Email can compromise the security of an company because sensitive information can easily distributes accidently or deliberately. Email should be entrusted to well train and trust directors.

Benefits of email in Drayton:

Money saving

Easily manageable

Transmission is secure and reliable.

Fast.

Cheap

Simple

Efficient

Versatile

It can distribute information quickly

Email is effective in finding the right person in an organization or company to answer your question.

Email saves money in Drayton it is intended to avoid travelling cost so it’s about saving cost in postage, stationary and post room staff time.

A person can manage all the correspondence on the screen and so their customers. Directors’ proposal can be answered, revised, stored and sent to others all without reams of paper involved.

It is fast in using ad conveying messages. In Drayton it is intended to do fast and quick work which will save time, money and a person will not be stressed out as well.

Email transmission cost is nothing or very little so the directors should not have to be worry to pay for using internet or emailing messages.

The use of internet is very easy and simple so the Drayton’s directors will easily be in contact with each other’s and will not get any sort of problems in using it.

It is efficient because it can be send to a number of people at a time.

It is versatile any kind of data can be sent (ex. Pictures). The directors can easily understand factory be sending pictures which will be easy task for them to understand.

The level of security in transmitting email is very high and industry continues to strive to develop even tighter security levels. Email is private. Often telephone and fax messages are not. If the address information is correct, rarely does an email go astray. Fax machines can be out of order or out of paper and this prevents and important message from being delivered in a timely manner.

Conclusion:

The internet and email enable businesses to improve communications, access information and cut costs. Used effectively, they can also help you to improve efficiency, find new business opportunities and work more closely with customers and suppliers.

However, to take advantage of these benefits, it is vital that you fully understand the potential for the internet and email to enhance the ways in which you do business. This guide provides an overview of the essential components of the internet and email, the opportunities for using them to do business more effectively and the ways in which they can help you to promote your business online.

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