Job Enrichment Division (JED), was a division of The Big Diamond Electronics Company. Big D, as it was known, was located in the southwest corner of Texas. The company produced a wide variety of consumer products, all using electronic components.
JED had been formed by Big D approximately two years ago, when the company realized that it needed a constant supply of low-wage labor. Most of its labor force consisted of immigrants, who would stay with the company for a few years, and then move north in the search of improved employment opportunities. Since its manufacturing operations required employees who had a basic level of literacy in the English language, Big D had realized that it made economic sense to train recently-arrived immigrants in both fundamental reading skills as well as English.
As a result of these needs, JED was required to conduct two different types of training programs: Basic Literacy and English as a Second Language. The division ran its programs for 40 weeks of the year, closing during the remaining weeks for breaks and vacations. Each program was managed by a separate program manager, who also was a faculty member of that program. The remaining faculty were hired on a per-session basis, based on the actual number of trainees in the session and the budgeted trainee:faculty ratio.
Big D gave JED a budget in the form of transfer price per-trainee. The transfer price was determined at the beginning of each fiscal year. Budgeted data on the two programs for the upcoming fiscal year are shown below.
Assignment
- Prepare a budget for the upcoming fiscal year. Try to set it up on a spreadsheet, and to make it as formula-driven as possible, using what you consider to be the key cost drivers.
- What kind of responsibility center should a program be? Why?