Thank You For Your Effort In Gb519 Unit 6

Gb519 Unit 6 Rubricthank You For The Effort In The Unit 6 Assignmentr

Please review all tabs for comments/feedback related to the Unit 6 assignment. The assignment involves analyzing financial data for Phelps Glass Inc. to compute controllable margin, total contribution, CPC, and operating income, based on provided revenues, costs, and expenses. Additionally, it requires evaluating incentive pay in the hospitality industry by calculating total compensation for Ramon Martinez based on various performance scenarios and commenting on the effectiveness of such incentive plans.

Paper For Above instruction

The analysis of financial performance metrics for Phelps Glass Inc. and the evaluation of incentive pay structures in the hotel industry are critical topics in managerial finance and compensation strategy. This paper explores these areas by providing detailed calculations and assessments based on given data, emphasizing the importance of controllable metrics in financial analysis and effective incentive plans in service industries.

Financial Analysis for Phelps Glass Inc.

Phelps Glass Inc. reported net revenues of $10 million with associated costs and expenses: variable costs of $5 million, controllable fixed costs of $2 million, noncontrollable fixed costs of $1 million, and untraceable costs of $0.5 million. To assess the company's profitability, we calculate the controllable margin, total contribution, contribution per controllable cost (CPC), and operating income, incorporating the specifications from Exhibit 18 in the relevant textbook.

First, the controllable margin is obtained by subtracting controllable costs from net revenue:

Controllable Margin = Net Revenue - Variable Costs - Controllable Fixed Costs = $10 million - $5 million - $2 million = $3 million.

Next, the total contribution, which includes all controllable revenues minus controllable expenses, is derived from the contribution margin. Since fixed costs are separated into controllable and noncontrollable, the total contribution here corresponds to the controllable margin, which is $3 million.

The contribution per controllable cost (CPC) is calculated by dividing the contribution margin by the total controllable costs:

Total Controllable Costs = Variable Costs + Controllable Fixed Costs = $5 million + $2 million = $7 million.

CPC = Controllable Margin / Total Controllable Costs = $3 million / $7 million ≈ $0.43 per dollar spent.

Operating income subtracts noncontrollable fixed costs and untraceable costs from the contribution margin:

Operating Income = Controllable Margin - Noncontrollable Fixed Costs - Untraceable Costs = $3 million - $1 million - $0.5 million = $1.5 million.

This analysis reveals that despite high fixed costs, Phelps Glass maintains a healthy operating income, emphasizing the importance of controlling variable and controllable fixed costs for profitability.

Incentive Pay Structure in the Hotel Industry

Ramon Martinez, the general manager of Classic Inn, has a base salary of $72,000, with proposed incentive bonuses based on occupancy, expense savings, and room rate increases. Upon achieving all targets, his total bonus could be up to $23,000, reducing his base salary to $60,000. The bonus components are designed to reward specific performance metrics: occupancy rate (40%), expense savings (25%), and room rate increases (35%).

The calculation of his total compensation under different scenarios involves considering the bonus earned from each metric, as well as the base salary. The metrics are quantified as follows:

• Occupancy: 29,200 room-nights = 80% x 100 rooms x 365 days
• Bonus per room-night: $0.315
• Expense savings: bonus of $1,150 per percentage point saved
• Room rate increase: $26.83 per percentage increase

Under scenario (a), with 30,000 room-nights, 5% expense savings, and a $3.00 rate increase, Ramon’s total compensation is calculated as:

Base salary: $60,000 + (30,000 x $0.315) + (5 x $1,150) + ($3 x $26.83) = $60,000 + $9,450 + $5,750 + $80.49 ≈ $75,280.49.

In scenario (b), with 25,000 room-nights, 3% savings, and a $1.15 rate increase:

Base salary: $60,000 + (25,000 x $0.315) + (3 x $1,150) + ($1.15 x $26.83) ≈ $60,000 + $7,875 + $3,450 + $30.77 ≈ $71,355.77.

Scenario (c) involves 28,000 room-nights, no savings, and a $1.00 rate increase:

Base salary: $60,000 + (28,000 x $0.315) + (0) + ($1.00 x $26.83) ≈ $60,000 + $8,820 + $0 + $26.83 ≈ $68,846.83.

Assessment of the Incentive Plan's Effectiveness

The incentive plan for Ramon Martinez, based on quantifiable metrics such as occupancy, expense savings, and rate increases, aligns managerial efforts with financial goals. Its effectiveness hinges on the accuracy and attainability of these targets. The plan incentivizes optimal performance by rewarding specific outcomes, thus motivating Ramon to improve operational efficiency and revenue generation.

However, the plan's structure may have drawbacks. Overemphasis on occupancy or rate increases might lead to compromised service quality or price gouging. Additionally, incentivizing expense savings could lead to underinvestment in maintenance or staff, adversely affecting guest satisfaction. Therefore, the plan's effectiveness depends on maintaining a balance between challenging targets and realistic achievements, alongside monitoring qualitative factors.

Conclusion

The financial analysis and incentive assessment demonstrate how managerial financial metrics and performance-based compensation can drive organizational success. Proper calculation of margins and contribution ratios helps managers make informed decisions that enhance profitability. Simultaneously, incentive plans that align employee goals with organizational objectives can motivate performance improvements if carefully designed and monitored.

References

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• Kaplan, R. S., & Norton, D. P. (2001). The Strategy-Focused Organization. Harvard Business Review Press.
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