Question

Help me to solve this case question

CCP Publishers

You have been hired by Chris Paraskevopoulos, who is an economics professor emeritus at your university. After retiring from teaching, Chris started an academic publishing business, which publishes university textbooks and trade books, the latter being academic books written by university professors for academic and professional audiences.
CCP Publishers is located on the 10th floor of a building in the northern part of the city. It also leases 500 square metres in the basement of the building for its warehouse operations. Chris is the chief editor as well as the CEO. There are four editors in addition to Chris, three editorial assistants, four marketing representatives, a business manager (yourself), and a warehouse supervisor. Chris and the four editors are all equal partners. The marketing representatives are responsible for selling CCP books to university and commercial bookstores.
The business model has changed little since CCP was established three years ago. Authors either contact an editor, or the editor contacts the author. In either situation, when there is an agreement between the author (or authors) and an editor that the book will be economically viable, a contract is signed that specifies the general content of the book, a publication schedule, and responsibilities for both CCP and the author or authors. An editor from CCP works with each author (or author group) in the development of a book. Currently, 35 books are in various stages of production. CCP has 42 books in print and available for sale. Most activities are contracted out, including copyediting, layout, index development, art work, photography, and printing. After printing, books are shipped directly to university and commercial bookstores.
The income statement for the latest fiscal year is shown below:
Sales $ 975,000
Cost of books sold (210,000)
Salaries and wages (540,000)
Rental (87,000)
Shipping (62,000)
Miscellaneous (52,000)
Operating income $ 24,000
Chris has some concerns about the profitability of CCP. He believes that CCP should be more profitable. He would to control the development costs for book. He would also like to know the profitability of each book, and how that profitability compares with expectations of the editor when the contract is signed. Consequently, you were hired as the business manager.
Required
As the business manager, use the case approach to address the CEO's profitability concerns.

Answer 1

In this case study, following financial information is available

Sales                                                      975000                

Exp.                                                                                       % of sales

Cost of Books Sold                          210000                  21.53

Salaries                                         540000                  55.38

Rental                                                   87000                    8.92

Shipping                                               62000                    6.36

Miscellaneous                                   52000                    2.46

Total                                                      951000                  97.54

Based on the information available, The CCP is spending almost 77% of its revenue on Salaries and Cost of production of Books. Hence we need to focus in these two areas immediately.

Salaries (We assume that these are fixed remuneration irrespective of the performance)

Since this is the biggest expense head, following changes can be made:

Editors Remuneration

1. Since decision to publish book is taken after editor is convinced about the profitability of book, Editors should be given sharing in profit from the books instead of fixed remuneration.
2. Since, a base case scenario is available before publishing a book, incentive /penalty be given to respective editor for exceeding target/ lagging beyond a specified thresh hold e.g. beyond 15 percent +/- from base case scenario for additional remuneration/penalty

Developmental Cost

3. Since most of the activities are outsourced, outsourcing contracts may be reviewed based on the current market scenario and should be negotiated wherever there is possibility.

4. Cost –benefit analysis of various activities with regard to in-house facility or outsourcing be done and appropriate decision be taken.

With the implementation of the above mentioned decisions, the concern of Mr Chris will e appropriately addressed in the following manner:

1. There will separate accounts/records for each books as the remuneration of the editor will be decided by the profit/loss made in that specific book. Hence, Editors will take additional care while deciding on the book to publish.

2. Any deviation from the base case scenario will also be documented to give bonus/penalty to respective editor.

3. With all these things on record, appropriate measures can be taken to do the course corcetion based on the inputs available, and will help improve the profitability in future.