Cmi Project Essay

Words: 2134
Pages: 9

Dated: June 19, 2013
To: Paul Singer,
From: Eric Hunter,
Corporate Controller
Subject: Analysis of Company’s Current Situation
Dear Paul,
After our meeting and analyzing the facts and figures available thoroughly, I came across the following short term as well as long term issues:
1. Short term issues:
1.1. Requirement to increase the transfer price of carburetors to $ 500
1.2. Impacts of Carburetor Production discontinuance on Engine Division(ED)
2. Long term issues:
2.1. Performance and Organization structure of Division - Profit centers or cost center
2.2. Transfer pricing guidelines needed to be revisited
2.3. Implication of Tax and duties and compliance issues
2.4. ED Capacity constraints
Following are my
…show more content…
This may require SD to complete a value analysis to eliminate non value added costs. Or if needed, engineering modifications reducing production costs and making snowmobiles distinctive through new features and attributes should be made. This may enable SD to charge a targeted price making it profitable.
We have further done an analysis of ROI ROS, ATO and ROI as below:
ED and ID in terms of income margin do well and earn around 10%, and seem managing costs efficiently. However, EDs investment yield is lowest among the divisions. This shows there is need to optimize investment base. It is another aspect which we are ignoring altogether. While SD having negative ROS has highest turnover of investment comparing the other two, where a dollar of investment supports approximately five dollars in revenues. It shows SD is facing operational inefficiencies.
Due to the corporate structure and different levels of investment, the divisional goals should be separately assigned. In other words we need to establish different performance criterion for each of the divisions based on respective business conditions and constraint. It should not be simply ROI of 12% standard for all. If the division is to be evaluated on a single performance measure, then they would not focus on what really matters but would rather concentrate on achieving high ROI. Therefore, we ought to