What is FedEx’s strategy for success in the marketplace? Does the company rely primarily on a customer intimacy, operations excellence, or product leadership customer value proposition? What evidence supports your conclusion?
What are FedEx’s four main business segments? Provide two examples of traceable fixed costs for each of FedEx’s four business segments. Provide two examples of common costs that are not traceable to the four business segments.
Identify one example of a cost center, a profit center, and an investment center for FedEx.
Provide three examples of fixed costs that can be traceable or common depending on how FedEx defines its business segments.
Compute the margin, turnover, and return on investment (ROI) in 2005 for each of FedEx’s four business segments (Hint: page 99 reports total segment assets for each business segment.)
Assume that FedEx established a minimum required rate of return of 15% for each of its business segments. Compute the residual income earned in 2005 in each of FedEx’s four segments.
Assume that the senior managers of FedEx Express and FedEx Ground each have an investment opportunity that would require $20 million of additional operating assets and that would increase operating income by $4 million. If FedEx evaluates all of its senior managers using ROI, would the managers of both segments pursue the investment opportunity? If FedEx evaluates all of its senior managers using residual income, would the managers of both segments pursue the investment opportunity?
To answer these questions, we'll need to examine relevant information about FedEx's strategy, business segments, costs, financial performance, and evaluation methods. Here's a step-by-step explanation on how to find the answers:
1. FedEx's strategy for success in the marketplace:
To determine if FedEx relies primarily on customer intimacy, operations excellence, or product leadership, you can analyze the company's actions, values, and marketing approach. Look for evidence such as customer testimonials, awards for operational efficiency, or innovative features in their products/services.
2. FedEx's four main business segments:
You can find this information in FedEx's financial reports or annual filings. Look for specific business segment names, such as FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services.
3. Two examples of traceable fixed costs for each business segment:
Traceable fixed costs are costs that can be directly assigned to a specific business segment. Examples might include rent for a distribution center dedicated to a particular segment or salaries of employees solely working for that segment.
4. Two examples of common costs not traceable to the four business segments:
Common costs are costs that cannot be directly linked to any specific business segment. Examples might include head office salaries that support multiple segments or corporate advertising costs that benefit all business segments.
5. Example of a cost center, profit center, and investment center for FedEx:
A cost center is a segment focused on controlling costs, a profit center focuses on generating profit, and an investment center has authority over both costs and investments. Identify segments of FedEx that fit these descriptions by considering their roles within the company's operations.
6. Three examples of fixed costs that can be traceable or common:
Fixed costs may be traceable or common depending on how FedEx defines its business segments. You could provide potential examples like warehouse-related costs, transportation equipment, or IT infrastructure that could be allocated differently across segments depending on management decisions.
7. Margin, turnover, and ROI computations for each business segment in 2005:
To compute these financial metrics, you'll need to gather financial data about each segment's revenues, expenses, and assets. Calculate the margin (profit/revenue), turnover (revenue/assets), and ROI (margin * turnover) using the information given on page 99.
8. Residual income earned in 2005 for each business segment:
Residual income is calculated by subtracting the minimum required return from the actual operating income of a segment. Given that the required rate of return is 15%, you can compute the residual income for each segment by subtracting the minimum required return from the operating income.
9. Evaluation of investment opportunity using ROI and residual income:
If FedEx evaluates managers using ROI, compare the ROI generated by the investment opportunity (additional operating income/ additional operating assets) with the company's required rate of return. If FedEx evaluates managers using residual income, compare the actual residual income generated by the investment opportunity with the minimum required return.
To find specific information for steps 1-9, you can refer to FedEx's annual reports, financial statements, or official company documents.