CT20-3.  

REAL-WORLD FOCUS

E

Founded in 1983 and foreclosed in 1996 Beverly Hills Fan Company was located in Woodland Hills, California. With 23 employees and sales of less than $10 million, the company was relatively small. In 1992, management felt that there was potential for growth in the upscale market for ceiling fans and lighting. They were particularly optimistic about growth in Mexican and Canadian markets. Presented below is information from the president’s letter in one of the company’s last annual reports.

Presented below is information from the president’s letter in one of the company’s last annual reports.

BEVERLY HILLS FAN COMPANYPresident’s Letter

An aggressive product development program was initiated during the past year resulting in new ceiling fan models planned for introduction this year. Award winning industrial designer Ron Rezek created several new fan models for the Beverly Hills Fan and L.A. Fan lines, including a new Showroom Collection, designed specifically for the architectural and designer markets. Each of these models has received critical acclaim, and order commitments for this year have been outstanding. Additionally, our Custom Color and special order fans continued to enjoy increasing popularity and sales gains as more and more customers desire fans that match their specific interior decors. Currently, Beverly Hills Fan Company offers a product line of over 100 models of contemporary, traditional, and transitional ceiling fans.

Instructions

(a)  

What points did the company management need to consider before deciding to offer the special-order fans to customers?

(b)  

How would have incremental analysis been employed to assist in this decision?

CT21-3.  

REAL-WORLD FOCUS

AN

Information regarding many approaches to budgeting can be found online. The following activity investigates the merits of “zero-based” budgeting, as discussed by Michael LaFaive, Director of Fiscal Policy of the Mackinac Center for Public Policy.

Address: www.mackinac.org/5928, or go to www.wiley.com/college/kimmel

Instructions

Read the article at the website and answer the following questions.

(a)  

How does zero-based budgeting differ from standard budgeting procedures?

(b)  

What are some potential advantages of zero-based budgeting?

(c)  

What are some potential disadvantages of zero-based budgeting?

(d)  

How often do departments in Oklahoma undergo zero-based budgeting?

CT22-3.  

REAL-WORLD FOCUS

AP

Computer Associates International, Inc., the world’s leading business software company, delivers the end-to-end infrastructure to enable e-business through innovative technology, services, and education. Recently, Computer Associates had 19,000 employees worldwide and revenue of over $6 billion.

The following information is from the company’s annual report.

COMPUTER ASSOCIATES INTERNATIONAL,    INC.

Management Discussion

The Company has experienced a pattern of business whereby   revenue for its third and fourth fiscal quarters reflects an increase over   first- and second-quarter revenue. The Company attributes this increase to   clients’ increased spending at the end of their calendar year budgetary   periods and the culmination of its annual sales plan. Since the Company’s   costs do not increase proportionately with the third- and fourth-quarters’   increase in revenue, the higher revenue in these quarters results in greater   profit margins and income. Fourth-quarter profitability is traditionally   affected by significant new hirings, training, and education expenditures for   the succeeding year.

Instructions

(a)  

Why don’t the company’s costs increase proportionately as the revenues increase in the third and fourth quarters?

(b)  

What type of budgeting seems appropriate for the Computer Associates situation?