Case 5-1 Profit Center Problems

1. AMAX Automobiles

Company facts:
A car company with three product lines, line A at the luxury
segment, line B the upscale segment, and line C at the mass

market segment.
Lines A, B, and C were produced and marketed by divisions A, B

and C.
Some components were sourced externally while other

components were manufactured inside the company.

There existed considerable scope for technology and know-how
transfer across divisions.

The solution:

AMAX has different divisions for different product, so the

operating managers have authority to control product

development, production process and marketing.

Focusing on profit center that provide ready information for top

management regarding profitability.

Focusing on profit margins spur managers to introduce new

products.
Focusing on the bottom line (profit / loss end) that encourage
the managers to make the maximum profit from the product

now.
Measuring the performance of manufacturing processes such as
quality control, scheduling product, and the decision to make or

buy.
Measuring profitability by using the performance of management
used for planning, coordination, and control the daily activities of
the profit center and as a tool to provide the proper motivation
for managers.

2. Indus Corporation
Company fact:

Indus was a diversified company operating in a number of niche

market
The companys primary basis for competitive advantage in each
of the market was to be a first mover and leader in product
innovation.

The situations that Indus faced:

Case A: The customer was mainly performance sensitive rather

than price sensitive. Also, there was little production synergy

across the various product lines.

Solution: In this case, Indus should use a detective control to
detect the mistake that have been made. Indus has to detect the
causes why the customer was mainly performance sensitive
rather than price sensitive. So if Indus gives the good
performance, the customer will dispose to pay high. And also,
why there was little production synergy across the various lines.
Because the customer want to buy decisions that made
independently. Also, Indus should using corrective control to make
the correction of the problem that has been detect by detective
control. So, it will not make the same mistake again.
Case B: The customer was mainly performance sensitive rather
than price sensitive. However, there was considerable production
synergy across the various product lines.
Solution: In this case, there was considerable production
synergy across the various product lines, so the company just
using the detective control. Indus has to verify the performance.
Case C: The customer was equally sensitive regarding product
performance and price. However, there was little production
synergy across the various product lines.
Solution: In this case, Indus has to know why the customer
sensitive with both performance and price, they want to receive
the good performance with the good price. But there was a little

production synergy across the various product lines. So they have

to solve the problem by using detective control and correction
control.
Case D: The customer was equally sensitive regarding product
performance and price. However, there was considerable
production synergy across the various product lines.
Solution: In this case, the customer wants to buy the good
product with the good price. And there was considerable
production synergy across the various product line, it means the
customers demand match with the production.