COMPREHENSIVE CASES Case 1

Zenith Computer Terminals, Inc. (A):

Development of a Total Business Plan

This case helps prepare students for what is to come in the course. Several of the future cases require them to develop a budget. It also relates directly to the chapter.

The student assumes the role of a "consultant" working within one organization (ZCT) to help implement the objective-setting process at the corporate level. The student is challenged first to establish corporate budget objectives for each of five major departments, and will work with the five department managers to develop supporting operational objectives.

I assign the case and have the students write up and turn in answers to the three questions at the end of the case. I then use the case as the "example" part of my lecture over Chapter 3.

Students like it because it is simple, straight forward, and has simple "numbers" they can use to get a specific answer.

It seems too early in the course to have one or more students present a case. I generally wait until Chapter 5 or after to have students begin presenting cases. By discussing cases, students get a good feel for what is expected of them in their presentations.

Questions for Discussion:

1. Develop a new budget based on how the ideal profit and loss statement should look if it reflects the president's bottom-line objective for ZCT. Justify your expenses for each of the five budgeted expense areas.

Here's how the "ideal" profit and loss statement should look if it is to reflect the president's bottom-line objective for Zenith Computer Terminals, Inc.:

SALES $12,000,000

 Sales--$1,000,000 in extra sales should be achieved by normal 10% growth. Another

$1,000,000 can be gained by adding four sales reps at a cost of $300,000. Therefore, add

$300,000 to last year's expense to get new budget goal of $1,800,000.

 Production--Last year's expense ($6,000,000) is increased by cost of new production line

$400,000; $125,000; $325,000. New budget goal is $6,850,000.

 Administration--Eliminating three clerical jobs will reduce the clerical overhead by one-fourth, or $50,000, bringing next year's goal down to $450,000.

 Service--A target ratio of 3-1 (sales-service), with a projected sales force of 24 means three new service reps at a total cost of $120,000. Add $30,000 for tools and budget goal is

$400,000.

2. What would be the net profit of sales?

A. Remained at $10 million and budgeted expenses increased to the projected levels.

SALES $10,000,000 B. Increased to $14 million and budgeted expenses increased to the projected levels.

SALES $14,000,000

3. Determine the four most important objectives for each department. Be specific by detailing what should be done and the time frame for reaching the objection.

A. Sales Department

Major objective: Increase sales volume to $12,000,000 next year, within budget of

$1,800,000.

Four objectives:

1. Hire four new sales reps by (2) January 31.

2. Complete training of four new reps by March 31. Personally handle the first month of classroom training. Use senior sales reps to coach each rep for three of the required four weeks of field training.

3. Increase sales 10% by spending 96 coaching days in field (four days per year per sales rep) to upgrade individual performance.

4. Sell 1,000 units (2) of new terminal (3) during fourth quarter (4) by training sales force last week of September.

B. Production Department

Major objective: Increase production to 12,000,000 units for next year within budget of

$6,850,000.

Four objectives:

1. Have new production line installed and running (2) by April 1.

2. Run four production lines on second eight-hour shift (2) for three weeks (3) during first quarter (4) to produce about 600 units. NOTE: For (4) allow full credit if within 10%. Three-month loss on new production line is about 625. Existing lines can produce about 200 per week.

3. Recruit and hire 10 production workers by (2) second week of March (or March 15).

4. Train 10 new production workers by (2) March 31.

C. Marketing Department

Major objective: Support sales force efforts to achieve $12,000,000 sales volume by providing sales leads and new product, within budget of $1,500,00.

Four objectives:

1. Implement a monthly direct mail program (2) capable of producing 8,640 inquiries during year (about 360 per sales rep). NOTE: For (2), allow full credit if within 10%. 6,000 leads last year equals 300 per rep. Add 20% increase (60) for total of 360. Expanded sales force of 24 multiplied by 360 equals 8,640.

2. Select vendor (consultant) to develop Alpha Terminal (2) by March 31.

3. Have consultant design approved by Alpha Terminal (2) by September 30.

4. Begin development of new brochure (2) by June 1, (3) to be available for sales meeting introduction (4) last week of September.

D. Administrative Department

Major objective: Cut back overhead costs from $500,000 to $450,000 and continue to provide efficient, administrative support to other departments.

Four objectives:

1. Terminate three clerical staff members, (2) one by January 15, (3) one by January 31, (4) and the third by February 15. NOTE: January 1, January 15, and January 31 are acceptable dates for (2), (3), and (4).

2. Train staff to take up workload of terminated employees during these three periods, (2) January 1-15, (3) January 15-31, (4) January 31-February 15.

3. Evaluate Joe Wallace (2) by January 31, or sooner, and make decision to replace or retain.

4. Start task force computer study by May 1, (2) complete by December 1.

E. Service Department

Major objective: To handle all service calls efficiently within specified budget of $400,000.

Four objectives:

1. Hire and train three new service reps (2) by January 31.

2. Satisfactorily handle 6,880 projected service calls (2) within 24 hours.

3. Design a new maintenance contract program (2) by June 30.

4. Implement new maintenance contract program during last six months of year with objective of (2) eliminating approximately 1,110 service calls.

NOTE: 7,400 + 1,480 (projected) = 8,880 and translated to 4,440 calls during last six months x 25%, or 1,110 calls saved.

4. Write up your recommendations to the president in a memorandum format.

Assign this question if you want to require students to write up a report and turn in to you.

Case 2

Zenith Computer Terminals, Inc. (B):

Strategic Business Plans Fail--Sales Decline Students need to forecast sales and recommend a plan of action.

1. Forecast next years total sales volume using both the naive and 3-year moving average forecast methods. Take a look at the following table:

Exhibit 1

Percentage of Sales for Each Region

West West East East Total

Central Central Sales

Prior Year 0% 100% 0% 0% $250,000

Prior Year 0% 75% 25% 0% 750,000

Prior Year 15% 50% 25% 10% 2,100,000

Prior Year 30% 20% 20% 30% 6,500,000

Prior Year 30% 20% 25% 25% 8,000,000

Prior Year 40% 15% 15% 30% 9,000,000

Last year 30% 30% 20% 20% 10,000,000

Present 30% 20% 20% 30% 9,500,000

Forecast (%)

Naive = 30.0^a 13.0 20.0 45.0

3-Yr. = 33.3 21.7 18.3 26.7

Forecast ($)

Naive = 2,707,500^a 1,173,250 1,805,000 4,061,250 9,025,000^c 3-Yr. = 3,163,500^b 2,061,500 1,738,500 2,536,500 9,500,000

aNaive = $2,707,500 + 1,173,250 + 1,805,000 + 4,061,250 = $9,747,000

b3-Yr. = $3,163,500 + 2,061,500 + 1,738,500 + 2,536,500 + $9,500,000

cForecasting using total sales = $9,025,000 but adding the 4 columns + $9,747,000. This is not a mistake.

Naive Method 9,500,000 Next Year's Sales = $9,025,000 = 9,500,000 * 10,000,000

Moving Average Forecast

Period Sales Volume Sales for 3-Year Period 3-Year Moving Average

1 6,500,000 ---

---2 8,000,000 ---

---3 9,000,000 23,500,000 9,000,000.0

4 10,000,000 27,000,000 9,500,000.0

Period 6 Forecast = $9,500,000.0 Caution: How to Do Calculations Not Shown in Text

Trend Projection

Year Time Period Sales (Thousands of Dollars)

1983 1 $250

1984 2 750

1985 3 2100

1986 4 6500

1987 5 8000

1988 6 9000

1989 7 10000

1990 8 9500

Trend projection = $12,433,333.3

How do you find a forecast for each region? I took the percentage forecast for each region and multiplied it by the total sales forecast. Naive = 30.0% x $9,025,000 = $4,707,500.

NOTE: When you add up the Naive's method 4 regional forecasts you get

$9,747,000. The forecast using total sales equals $9,025,000. Why do we get

$9,747,000 instead of $9,025,000? Look at the "East's" naive sales forecast. The percentage increased from 20% to 30% resulted in a % forecast of 45%. This is certainly wrong. However, we used the formula correctly. The lesson: You need to

understand what you're doing when forecasting. Forecasting methods have their advantages and disadvantages.

2. Henry has been told to increase sales to $12 million, regardless of past sales. Based upon the information presented, what actions could Henry take to increase sales?

This is the third case in the Zenith series. There is not enough information given to answer this question. Henry doesn't have a chance unless the present year was a fluke and sales will increase.

Henry needs to examine each region. West Central's sales dropped 10%. Maybe this is the problem.

Case 3

Zenith Computer Terminals, Inc. (C):

Redesigning Sales Territories

This case has numerous answers -- all of which could be correct. Students are asked to redesign the sales regions of a small company with 19 salespeople, 4 regional managers, and projected sales of 9,500,000.

Henry Butler, Zenith's VP of Sales, wants the regions to be divided equally. One group presenting this case in my class used the following approach. You could use it in your discussion of "one-way" to handle the case.

Questions for Discussion:

1. Redesign Zenith's sales territories following Henry's guidelines.

A. First, you must determine sales for each state. To do this multiply each state's percentage by

$9,500,000. The results are shown in Table 1 of this case comment.

B. Determine each region's total sales.

$ 2,375,000 4)$ 9,000,000

C. Merge states together until sales in each region are approximately equal. Here is one way to do it.