Consider the case of Home Furnishings, Inc., which was described in Self Study Question 1. Divisional assets are $8,200,000 in Kitchen Products and $4,000,000 in Bath Products.
a. Compute ROI for the two divisions.
b. Assess the relative performance of the two division managers at Home Furnishings, Inc., using ROI.
Case Study Question 1: Home Furnishings, Inc., is a nationwide retailer of home furnishings. It is organized into two divisions, Kitchen Products and Bath Products. Selected information on performance for year 2 follows:
a. Compute after tax divisional income for the two divisions.
The tax rate is 35 percent. Comment on the results.
b. Using the information from requirement (a), assess the relative performance of the two division managers at Home Furnishings, Inc.
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|
Kitchen |
Bath |
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|
|
($000) |
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|
Revenue |
$10,000 |
$5,000 |
|
|
Cost of sales |
5,400 |
3,000 |
|
|
Allocated corporate overhead |
460 |
200 |
|
|
Local advertising |
2,000 |
500 |
|
|
Other general and admin |
500 |
260 |
|