Case Paper on Quality Metal Service Center (Case 7-3)

Class: ACCT.6302.CONTEMPORARY CONTROL SYSTEMS

Paper: Case Paper on Quality Metal Service Center (Case 7-3)

Submitted on: 3/19/2012

Executive Summary:

An important objective of a profit-oriented company is to earn a satisfactory return on the capital that the company invests. In most of the business units, the profit is measured by difference between revenues and expenses. Focusing on profits without considering assets employed to generate those profits is an adequate basis for control. Quality Metal Service Center has successfully implemented performance evaluation and incentive structure based on ROA (Return on Assets) targets.

Quality Metal Service Center (QMSC) has a history of 100 years as a local metal distributor, grown into a firm with national distribution. In 1991, its sales were well over $750 million. QMSC’s core business strategies such as focusing sales efforts on targeted specialty metal users, determining needs based on geographic locations and implementing quality assurance programs through new technologies have helped the company to be leader in the industry.

In early March 1992, Mr. Edward Brown, president and CEO of QMSC made observation that company is capable of achieving higher levels of sales and profits and might have missed out growth opportunities. He insisted team to review controls while evaluating systems to make sure these does not inhibit managers from pursuing goals and above average return on assets, as compared to the industry. This paper will review and analyze QMSC’s ROA (Return on assets) as performance measurement in evaluating managers’ performance and evaluate capital investment proposal by sales manager and its impact on district manager’s incentives.

Metal Service Centers’ Industry Overview

The metal distribution industry was generally regarded as a mature, highly competitive, and fragmented industry. In their efforts to become more competitive through increased productivity and the recent key trends in...