Email from Susanna Leong

From: Susanna Leong, Senior Financial Manager

To: Financial Manager

Subject: Responsibility centres and funding

Hi Financial Manager,

Currently, each building is treated as a cost centre, and though the costs incurred are tracked and analysed at senior management team (SMT) meetings, the chief concierge, who is the manager of the building, is neither held responsible nor does their bonus depend on cost savings achieved by them.

Now that there is a proposal, please find attached, to restructure the buildings, I think we need look again at how each building is managed. At the next SMT meeting, I want to suggest that we begin treating each building as a profit centre or investment centre. The initial estimates show that the cost of restructuring the 55 identified buildings would be T$ 400 million.

Please write a report in which you:

• Discuss the possible implications of treating each building as a profit centre or investment centre and give reasons for which type of responsibility centre you think is the most suitable in light of the proposed restructuring.

[Sub task a – 50%]

• Discuss the characteristics of debt and equity via new share issues as potential sources of finance for the T$400 million that the company would require to restructure these buildings.

[Sub task b – 50%]

Kind regards,

Susanna Leong