Willy Auto Part (WAP) manufactures replacement parts for car repairs. The following situation concerns two WAP employees: Sandra Smith, head of the company's Billing and Invoicing (B&I) Department, and Jack Davis, the firm's general manager. Smith’s Billing Department makes heavy use of hourly employees and is evaluated as a cost center. Understanding the need for prompt collection of receivables, Smith strives to run a first-class operation. Smith also understands the need to contribute in a big way to WAP's financial performance so she continually strives to minimize B&I expenses. Unfortunately, Smith experienced a heated discussion with Davis several weeks ago, the subject being the shoddy operation that she is running. Davis complained loudly about the lack of timely billings to customers and the general lack of attention to detail, as many complaints have surfaced about erroneous invoices and customer statements.

Required:

A. What measure(s) of performance should the company use to evaluate B&I manager? Should the company consider controllability when measuring the performance of the manager? Why?

B. Does Davis have a valid reason to be upset with Smith? Given the nature of the B&I Department, did Smith make a mistake in her quest to minimize expenses? Explain.

C. Is it likely that the B&I Department could be evaluated as a profit center? Why? 

Answer rating: 100% (QA)

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