FedEx Corporation Essay Sample

Question 1

According to FedEx Corporation, its strategy for success is to make it convenient for customers to use the full range of FedEx services through the use of advanced information systems. This means the company mainly relies on operational excellence customer value proposition through its different business segments. For example, through its FedEx OneCall program, the company assigns a single customer service agent to handle virtually all issues of a customer’s account.

Question 2

FedEx Corporation’s four main business segments include: FedEx Express, FedEx Ground, FedEx Freight and FedEx Kinko.
FedEx Express provides express delivery of packages and documents to over 220 countries in the world. The traceable costs FedEx Express business segment includes the cost of hiring and buying aeroplanes that are used to deliver the packages to other countries in the world.
FedEx Ground provides ground package delivery services to businesses and residential locations in North America. Traceable fixed costs for FedEx Ground include the cost of buying the 19,700 trailers that are used to transport packages to different local destinations in North America. Traceable costs also include the wages of the President and C.E.O, Mr. David J. Bronczek as well as other employees.
FedEx Freight provides regional and interregional LTL freight services to its customers. One of the traceable fixed costs associated with FedEx Freight mainly include the costs in leasing the different service centres. Additionally it also incurred costs in operating the 39,500 vehicles and trailers.
FedEx Kinko is the latest addition to the portfolio and it mainly deals with document management, printing, copying and office solutions to its various clients. The fixed traceable costs that are incurred by FedEx Kinko include cost of obtaining office stationery as well as lease of facilities for various Office and Print Centres.
FedEx Corporation incurs cost of marketing and promoting the FedEx brand name through corporate sponsorships such as The National Football League “Official Delivery Service Sponsor” as listed on page 19 of the form 10-K. This a common cost that is not traceable to any particular segment. There are also fees paid to its external auditor listed on page 30 of the form 10-K as Ernst & Young LLP. In addition, there are wages for senior executives and officers for FedEx Corporation that cannot be attributed to one particular FedEx business segment.

Question 3

Cost centres for FedEx Corporation would include centres responsible for costs in the different business segments such as sorting facilities for FedEx Express and Information Technology centres for FedEx Kinko. They are maintained for operations and do not realise any income. Profit centres would include business segments which are responsible for the revenues that are realised. One such example is the FedEx Kinko Office and Print Centres. Through the retail sales as well business support services, the centres are able to make profits after deducting costs from the incomes. Investment centres of FedEx Corporation are the centres which can be measured by the units of capital utilised, as well as costs and revenues. In that case, each of the four segments can be considered as an investment centre because the segments have different units that can be measured in terms of costs, revenues and use of capital.

Question 4

The cost of sponsoring The FedEx Kinko’s Classic, a PGA Champions Tour event could be traceable to FedEx Kinko. It could also be a common cost realised by all segments as advertisement costs in marketing and promotions of the FedEx brand name. The salary of the Executive Vice President, T. Michael Glenn would be traceable to FedEx’s Market Development and Communications departments but could also be common to FedEx’s four business segments. The cost of maintenance of trucks and trailers for delivering packages could be specific to each business segment as well as be common to FedEx Corporation.

Question 5

The amount of money is given in millions of dollars.
Question 6
The amount of money is given in millions of dollars.
Question 7
Based on ROI, a $20 million operating assets with a $4 million operating income, then the ROI will be 20%. It would make sense for FedEx Express managers to pursue the investment opportunity. The 20% ROI would raise its previously reported 11.1% ROI to some significant extent since it is higher by about 8.9%. However, it would not make sense for FedEx Ground managers to pursue the investment opportunity since it is lower than its reported ROI of 24.0%. It would cause a decrease in FedEx Ground’s reported ROI. On the other hand if FedEx evaluates its senior managers by residual income then the mangers should pursue the investment opportunity. It would reduce loss in residual income for FedEx Express and increase residual income for FedEx Ground respectively as shown below:

Additional Operating Income (AOI) - $4 million

ROI (15% × $20 million) - $3 million

Residual Income (AOI – ROI) - $1 million

Thus, for FedEx Express residual income which was at a loss reduces from $504 million to $503 million. As for FedEx Ground, the residual income increases from $227 million to $ 228 million.