Case Example 3

Management Control Systems

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Accounting 858: Original Case By Herita Akamah, Paul Badura, Tom Kubick, & Daniel Morris
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Excess Capacity in a Computer Manufacturing Company I. Introduction A. Company Specifics B. Recent Trends in the Industry C. Possible Course of Action II. Lease Out The Unused Space A. Rental Income From Leasing the 25% Unused Capacity B. Profit From Manufacturing Use III. Let Unused Capacity Stay Unused A. Opportunity Costs of the 25% Unused Capacity B. Effect of Price Discrimination on Customer Relations and Profitability IV. Increase Production to Take Advantage of Economies of Scale A. Possible reduction in average unit cost B. Strategic inconsistencies and concerns V. Produce A New Product A. Use of the Same Machines B. Required Purchase of New Machines VI. Manufacture Bell Branded Components A. Use of the Same Machines B. Required Purchase of New Machines VII. Contractual Arrangements A. Importance of contract structure B. Peripheral and incremental implications
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Bell Computers, Inc. Bell Computers, Inc., headquartered in Omaha, Nebraska, is a leader in technology and innovation. Bell was started in 1991 in Lincoln, Nebraska by David Bell, while attending the University of Nebraska-Lincoln College of Business Administration. Bell decided to open his own computer repair shop out of his parents’ basement, and eventually started to make and sell his own customized computer systems. Bell started out selling all computers with a made-to- order business model, and he offered several software packages to gear the system towards the customers’ optimal usage (business or personal use). Because Bell assembled the computers himself, using only the components and features customers demanded, Bell was able to offer a competitive solution to the traditionally bundled store bought systems. Today, Bell Inc. has grown into a multi-million dollar per year corporation. Bell Inc. has a sophisticated made-to-order manufacturing process. Each order is custom made and assembled by hand in the Omaha, NE plant. Customers can log on to the Bell Inc. website, or phone in orders from product catalogs and custom build an entire computer system based on their individual or business needs. Bell Inc. provides customers with three full product lines each for desktop and laptop computers, offering an entry-level, intermediate, and highly advanced system. Customers can choose the options they prefer from a large list of name brand components, such as Intel processors, Seagate hard drives, and Corsair memory modules. Bell also offers a full line of their own brand of computer monitors, ranging from entry-level traditional CRT monitors, to the latest innovation – LCD flat-panel widescreen digital monitors. Recently, the computer industry has suffered a setback.
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Case Example 3 - Accounting 858: Original Case By Herita...

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