AND ENTERTAINMENT COSTS
Vice President of Operations
Linda Moreno, Manager
Cost Accounting Services
May 15, 2013
TO:Dennis McWilliams, Vice President of Operations
FROM:Linda Moreno, Manager of Cost Accounting Services
DATE:February 15, 2000
SUBJECT:Reducing Electrovision's Travel and Entertainment Costs Here is the report you requested January 30 on Electrovision's travel and entertainment costs. Your suspicion was right. We are spending far too much on business travel. Our unwritten policy has been "anything goes," leaving us with no real control over T&E expenses. Although this hands-off approach may have been understandable when Electrovision's profits were high, we can no longer afford the luxury of going first class. The solutions to the problem seem rather clear. We need to have someone with centralized responsibility for travel and entertainment costs, a clear statement of policy, an effective control system, and a business-oriented travel service that can optimize our travel arrangements. We should also investigate alternatives to travel, such as videoconferencing. Perhaps more important, we need to change our attitude. Instead of viewing travel funds as a bottomless supply of money, all traveling employees need to act as though they were paying the bills themselves. Getting people to economize is not going to be easy. In the course of researching this issue, I've found that our employees are exceedingly attached to their first-class travel privileges. I think they would almost prefer a cut in pay to a loss in travel moderation. One thing is clear: People will be very bitter if we create a two-class system in which top executives get special privileges while the rest of the employees make the sacrifices. I'm grateful to Mary Lehman and Connie McIlvain for their help in collecting and sorting through five years' worth of expense reports. Their efforts were truly Herculean. Thanks for giving me the opportunity to work on this assignment. It's been a real education. If you have any questions about the report, please give me a call.
This report analyzes Electrovision's travel and entertainment (T&E) costs and presents recommendations for reducing those costs. Travel and Entertainment Costs Are Too High
Travel and Entertainment is a large and growing expense category for Electrovision. The company spends over $16 million per year on business travel, and these costs have been increasing by 12 percent annually. Company employees make roughly 3,390 trips each year at an average cost per trip of $4,720. Airfares are the biggest expense, followed by hotels, meals, and rental cars. The nature of Electrovision's business does require extensive travel, but the company's costs appear to be excessive. Every year Electrovision employees spend more than twice as much on T&E as the average business traveler. Although the location of the company's facilities may partly explain this discrepancy, the main reason for Electrovision's high costs is the firm's philosophy and managerial style. Electrovision's tradition and its hands-off style almost invite employees to go first class and pay relatively little attention to travel costs. Cuts Are Essential
Although Electrovision has traditionally been casual about travel and entertainment expenses, management now recognizes the need to gain more control over this element of costs. The company is currently entering a period of declining profits, prompting management to look for every opportunity to reduce spending. At the same time, rising airfares and hotel rates are making travel and entertainment expenses more important to the bottom line. Electrovision Can Save $6 Million per Year
Fortunately, Electrovision has a number of excellent opportunities for reducing its travel and entertainment costs....