Enager Industries
CASE CONTEXT:
Enager Industries, Inc. was a relatively young company, which had grown rapidly to its 1993 sales level of over $222 million. (See Exhibits 1 and 2 for financial data for 1992 & 1993). The company has three divisions which were treated as independent companies because of their differing nature of activities.
The corporate office of Enager consists only of few managers and staff. The function of the corporate unit is to coordinate the activities of the three divisions. One aspect of this coordination was to that all new project proposals requiring investment in excess of $1.5M had to be reviewed by CFO. One of these proposals was submitted by Ms. Sarah McNeil, which was rejected by the CFO, Mr. Henry Hubbard. (See Exhibit 3 for the details of Ms. McNeil’s proposal).
Enager had three divisions:
Consumer Products
The oldest of the three divisions, designs & manufactures a line of house ware items, primarily for use in the kitchen.
Industrial Products
Builds customized machine tools, a typical job takes months to complete.
Professional Services
The newest of the three divisions, had been added to Enager by acquiring a large firm that provided land planning, landscape architecture, structural architecture, and consulting engineering services.
STATEMENT OF THE PROBLEM:
The problem occurred when the president was unsatisfied with the ROA (Return of Assets) of Industrial Products Division and tried to put pressure on the General Manager of the Division.
To develop and understanding of process and systems for management control
To discuss the nature of Management control process
To elaborate how accounting information facilitates management control
MANAGEMENT CONTROL SYSTEM:
STRUCTURE
Prior to 1992, divisions are treated as profit center, but in 1992 Enager’s president had decided to begin treating each division as an investment center. This is to be able to relate each division’s profit to the assets used to generate its
Enager Industries, Inc. was a relatively young company, which had grown rapidly to its 1993 sales level of over $222 million. (See Exhibits 1 and 2 for financial data for 1992 & 1993). The company has three divisions which were treated as independent companies because of their differing nature of activities.
The corporate office of Enager consists only of few managers and staff. The function of the corporate unit is to coordinate the activities of the three divisions. One aspect of this coordination was to that all new project proposals requiring investment in excess of $1.5M had to be reviewed by CFO. One of these proposals was submitted by Ms. Sarah McNeil, which was rejected by the CFO, Mr. Henry Hubbard. (See Exhibit 3 for the details of Ms. McNeil’s proposal).
Enager had three divisions:
Consumer Products
The oldest of the three divisions, designs & manufactures a line of house ware items, primarily for use in the kitchen.
Industrial Products
Builds customized machine tools, a typical job takes months to complete.
Professional Services
The newest of the three divisions, had been added to Enager by acquiring a large firm that provided land planning, landscape architecture, structural architecture, and consulting engineering services.
STATEMENT OF THE PROBLEM:
The problem occurred when the president was unsatisfied with the ROA (Return of Assets) of Industrial Products Division and tried to put pressure on the General Manager of the Division.
To develop and understanding of process and systems for management control
To discuss the nature of Management control process
To elaborate how accounting information facilitates management control
MANAGEMENT CONTROL SYSTEM:
STRUCTURE
Prior to 1992, divisions are treated as profit center, but in 1992 Enager’s president had decided to begin treating each division as an investment center. This is to be able to relate each division’s profit to the assets used to generate its