Cheap Land Offer Case Analysis
ISSUE 1:
Swap land offer
ANALYSIS
JCL got an offer from Sleepside developer to purchase the land that main Sleepside lumberyard occupies and to relocate the lumberyard to another comparable site. The developer has offered to provide a lot, to build comparable store, move all shelving, racking, and inventory to new facility and pays $5 million. Per year increase in net income is estimated to be 11% for the first ten years and after that there will be no significant difference between the existing and proposed alternatives.
RECOMMENDATION:
JCL should reject this offer, as new facility would not provide any additional income. The NPV of proposed facility is 4.5 million whereas NPV of future cash flow of existing facility is 9.8 million (Exhibit …show more content…
JCL mangers prepares budget late by three months and performances is measured on the basis of sales.
RECOMMENDATION
Some changes to the management control are required to maintain effective communication and pursue opportunities. Mangers should be allowed to have some direct control over their areas of responsibilities such as vacation schedules and hiring employees. Manager should be engaged in setting budget targets. Also, the timeline should be strictly followed to ensure those budgets are prepared on time. New performances measure such as speed of delivery should be added to evaluate the performances and managers should be held responsible.
General managers and president should come with a decision of whether both units should be treated as cost or profit center. At present, 68% of manufacturing’s sales are outside the firm, therefore, it should be treated as a profit center rather than cost center. However, almost 63% of Lumberyard’s lumber is supplied by manufacturing division and, if manufacturing start acting as completely independently then lumberyard division may experience difficulties finding other
Swap land offer
ANALYSIS
JCL got an offer from Sleepside developer to purchase the land that main Sleepside lumberyard occupies and to relocate the lumberyard to another comparable site. The developer has offered to provide a lot, to build comparable store, move all shelving, racking, and inventory to new facility and pays $5 million. Per year increase in net income is estimated to be 11% for the first ten years and after that there will be no significant difference between the existing and proposed alternatives.
RECOMMENDATION:
JCL should reject this offer, as new facility would not provide any additional income. The NPV of proposed facility is 4.5 million whereas NPV of future cash flow of existing facility is 9.8 million (Exhibit …show more content…
JCL mangers prepares budget late by three months and performances is measured on the basis of sales.
RECOMMENDATION
Some changes to the management control are required to maintain effective communication and pursue opportunities. Mangers should be allowed to have some direct control over their areas of responsibilities such as vacation schedules and hiring employees. Manager should be engaged in setting budget targets. Also, the timeline should be strictly followed to ensure those budgets are prepared on time. New performances measure such as speed of delivery should be added to evaluate the performances and managers should be held responsible.
General managers and president should come with a decision of whether both units should be treated as cost or profit center. At present, 68% of manufacturing’s sales are outside the firm, therefore, it should be treated as a profit center rather than cost center. However, almost 63% of Lumberyard’s lumber is supplied by manufacturing division and, if manufacturing start acting as completely independently then lumberyard division may experience difficulties finding other