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• Najla Masthura

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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

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and C. Some components were sourced externally while other

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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

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development, production process and marketing. Focusing on profit center that provide ready information for top

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management regarding profitability. Focusing on profit margins spur managers to introduce new

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

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

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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:

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Indus was a diversified company operating in a number of niche

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market The company’s 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.