Assessment 2 (Business Research Report) – All Students
For the research report, you are required to write an academic type business report to the management addressing the issues raised in the case scenario and providing suitable recommendations. In order to do this, you are expected to reason and argue your ‘point of view’ using suitable literature. This should include appropriate literature and citations from a minimum of 3 journal articles.
Word limit: You should write no more than 1,000 words for this assignment excluding cover page, references and appendix. Writing more than 1,000 words indicates that you need to edit your work to remove unnecessary words. Concise writing is a valuable business skill.
Research Report Question:
Manu Mahan had just been appointed vice president of the Wellington Regional Events Corporation (WRE). The company provides services for a variety of special events, from planning for events, sending out invitations, co-ordinating eating and drinks requirements, setting up and decorating event venues, to hosting and after event cleaning services. The clients send their event details, type of event, venue for the event, number of attendees, dietary requirements, type of drinks, expectations regarding decorations and so on to WRE which records the data on each event in a computerised database. WRE then sends the data electronically to the nearest event centre which then proceeds to get in touch with the individual client within their region/vicinity for further details and for a face-to-face meeting. The Wellington Region has three event centres, which are in Porirua, Newlands, and Lambton Quay (Central Wellington). Prior to her promotion to vice president, Ms Mahan had been the general manager of an events coordinating centre in Auckland.
Immediately after assuming her new position, Ms Mahan requested a complete financial report for the just-ended fiscal year from the region’s controller, Foon Chang. Ms Mahan specified that the financial report should follow the standardised format required by corporate headquarters for all regional performance reports. That report follows:
Wellington Regional Events Corporation (WRE).
| Wellington Region Financial Performance | ||||
| Events Coordination Centres | ||||
| Total | Porirua | Newlands | Lambton Quay (CentralWellington) | |
| Sales | $50,000,000 | $20,000,000 | $18,000,000 | $12,000,000 |
| Operating expenses | ||||
| Direct labour | 32,000,000 | 12,500,000 | 11,000,000 | 8,500,000 |
| Variable overhead | 850,000 | 350,000 | 310,000 | 190,000 |
| Equipment depreciation | 3,900,000 | 1,300,000 | 1,400,000 | 1,200,000 |
| Facility expense* | 2,800,000 | 900,000 | 800,000 | 1,100,000 |
| Local administrative expense+ | 450,000 | 140,000 | 160,000 | 150,000 |
| Regional Administrative expense ^ | 1,500,000 | 600,000 | 540,000 | 360,000 |
| Corporate administrative expense¥ | 4,750,000 | 1,900,000 | 1,710,000 | 1,140,000 |
| Total operating expense | 46,250,000 | 17,690,000 | 15,920,000 | 12,640,000 |
| Net operating income (loss) | $ 3,750,000 | $ 2,310,000 | $ 2,080,000 | $ (640,000) |
*Includes building rental expense for the Porirua, and Newlands locations and building depreciation for the Lambton Quay (Central Wellington) location.
+ Local administrative expenses are the administrative expenses incurred at the event coordination centres.
^Regional administrative expenses are allocated to the events coordination centres based on sales.
¥Corporate administrative expenses are charged to segments of the company such as the Wellington Region and the events co-ordination centres at the rate of 9.5% of their sales.
Upon seeing this report, Ms Mahan summoned Foon Chang for an explanation.
Mahan: What’s the story on Lambton Quay (Central Wellington)? It didn’t have a loss the previous year, did it?
Chang: No, the Lambton Quay (Central Wellington) facility has had a nice profit every year since it opened six years ago, Lambton Quay (Central Wellington) lost a big contract this year.
Mahan: Why?
Chang: One of our national competitors entered the local market and bid very aggressively on the contract. We could not afford to meet the bid. Lambton Quay (Central Wellington)’s costs – particularly their facility expenses – are just too high. When Lambton Quay (Central Wellington) lost the contract, we had to lay off a lot of employees, but we could not reduce the fixed costs of the Lambton Quay (Central Wellington) facility.
Mahan: Why is Lambton Quay (Central Wellington)’s facility expense so high? It’s a smaller facility than either Porirua or Newlands and yet its facility expense is higher.
Chang: The problem is that we are able to rent suitable facilities very cheaply at Porirua and Newlands. No such facilities were available at Lambton Quay (Central Wellington); we had them built. Unfortunately, there were big cost overruns. The contactor we hired was inexperienced at this kind of work and in fact went bankrupt before the project was completed. After hiring another contractor to finish the work, we were way over budget. The large depreciation charges on the facility didn’t matter at first because we didn’t have much competition at the time and could charge premium prices.
Mahan: Well, we can’t do that anymore. The Lambton Quay (Central Wellington) facility will obviously have to be shut down. Its business can be shifted to the other two events coordination centres in the region.
Chang: I would advise against that. The $1,100,000 in facility depreciation at the Lambton Quay (Central Wellington) location is misleading, that facility should last indefinitely with proper maintenance, and it has no resale value; there is no other commercial activity around Lambton Quay (Central Wellington).
Mahan: What about the other costs at Lambton Quay (Central Wellington)?
Chang: If we shifted Lambton Quay (Central Wellington)’s sales over to the other two events coordination centres in the region, we wouldn’t save anything on direct labour or variable overhead costs. We might save $90,000 or so in local administrative expense, but we would not save any regional administrative expense and corporate headquarters would still charge us 9.5% of our sales as corporate administrative expenses.
In addition, we would have to rent more space in Porirua and Newlands in order to handle the work transferred from Lambton Quay (Central Wellington); that would probably cost us at least $600,000 a year. And don’t forget that it will cost us something to move the equipment from Lambton Quay (Central Wellington) to Porirua and Newlands. And the move will disrupt service to clients.
Mahan: I understand all of that, but a money-losing events coordination centre on my performance report is completely unacceptable.
Chang: And if you shut down Lambton Quay (Central Wellington), you are going to throw some loyal employees out of work.
Mahan: That’s unfortunate, but we have to face hard business realities.
Chang: And you would have to write off the investment in the facilities at Lambton Quay (Central Wellington).
Mahan: I can explain a write-off to corporate headquarters; hiring an inexperienced contractor to build the Lambton Quay (Central Wellington) facility was my predecessor’s mistake. But they’ll have my head at headquarters if I show operating losses every year at one of my events coordination centres. Lambton Quay (Central Wellington) has to go. At the next corporate board meeting, I am going to recommend the Lambton Quay (Central Wellington) facility be closed.
Required:
Write a report to the management of the Wellington Regional Events Corporation (WRE) advising and recommending if the Lambton Quay (Central Wellington) events coordination centre should be closed with appropriate academic arguments, citations and using financial evidence (summary calculation) where appropriate. In your report answer requirements 1, 2 and 3 to inform your arguments and propose suitable recommendation/s. Use headers and sub- headers (you can use sub-sub-header under the sub-header) to ensure the flow of logical arguments. Round all calculations to the nearest dollar.
Note: Your report should be based on sound academic reasoning with evidence / citations from academic journals, explaining and analysing the major concepts on which you base your arguments and the corresponding calculations. Include only the most important calculations as a check figure in your report. Provide detailed calculations in the appendix and when including check figure calculations in your content, remember to refer to the appendix for detailed calculations.
Requirements to address in your report:
- Based on the financial perspective only and from the standpoint of the Wellington Regional Events Corporation (WRE) should Lambton Quay events coordinating centre be closed down. Discuss and analyse the financial advantage and/or disadvantages of closing the Lambton Quay (Central Wellington) events coordinating centre and redistributing its work to other events coordinating centres in the region? Explain with supportive analysis and check figures from calculations.
- Analyse and discuss using constructive academically based arguments and your calculations why might it be in Manu Mahan’s self-interest to shut down the Lambton Quay (Central Wellington) facility? Do you think Manu Mahan is conducting herself in an ethical fashion? Explain and analyse using academic arguments.
- What influence should the depreciation on the facilities at Lambton Quay (Central Wellington) have on prices charged by Lambton Quay (Central Wellington) for its services? Discuss and analyse, making sure you include the check figure calculations.
Based on the discussion and analysis of the above 3 issues provide suitable recommendation/s to the management of WRE.