ating_creating_value_in_a_dynamic_business environment_11e.pdf (SECURED) - Adobe Acrobat Reader DC
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The following partial organization chart is an extension of Exhibit 12–1 for Aloha Hotels and Resorts.
Problem 12-41
Designating Responsibility
Centers; Hotel
(LO 12-2)
Waikiki Sands Hotel
Grounds and
Malntenance
Department
Housekeeping and
Custodial
Department
Recreational
Services
Department
Hospitality
Department
Food and
Beverage
Department
Front
Desk
Bell
Staff
Guest
Services
Each of the hotel's five main departments is managed by a director (e.g., director of hospitality).
The Front Desk subunit, which is supervised by the front desk manager, handles the hotel's reserva-
tions, room assignments, guest payments, and key control. The Bell Staff, managed by the bell captain,
is responsible for greeting guests, front door service, assisting guests with their luggage, and deliver-
ing room-service orders. The Guest Services subunit, supervised by the manager of Guest Services, is
responsible for assisting guests with local transportation arrangements, advising guests on tourist attrac-
tions, and such conveniences as valet and floral services.
Required: As an outside consultant, write a memo to the hotel's general manager suggesting a
responsibility-center designation for each of the subunits shown in the organization chart above. Justify
your choices.
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Problem 13-42
ROI and Residual Income;
Investment Evaluation
(LO 13-2, 13-3, 13-4, 13-8)
Megatronics Corporation, a massive retailer of electronic products, is organized in four separate divi-
sions. The four divisional managers are evaluated at year-end, and bonuses are awarded based on ROI.
Last year, the company as a whole produced a 13 percent return on its investment.
During the past week, management of the company's Northeast Division was approached about the
possibility of buying a competitor that had decided to redirect its retail activities. (If the competitor is
acquired, it will be acquired at its book value.) The data that follow relate to recent performance of the
Northeast Division and the competitor:
3. Income: $150,000
5. Current residual income
of the Northeast Division:
$148,000
Northeast Division
Competitor
Sales
$8,400,000
Variable costs
70% of sales
Fixed costs
Invested capital
$5,200,000
65% of sales
$1,670,000
$625,000
$2,150,000
$1,850,000
Chapter 13 Investment Centers and Transfer Pricing
587
Management has determined that in order to upgrade the competitor to Megatronics' standards, an
additional $375,000 of invested capital would be needed.
Required:
As a group, complete the following requirements.
1. Compute the current ROI of the Northeast Division and the division's ROI if the competitor is
acquired.
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Northeast Division
Competitor
Sales
$8,400,000
$5,200,000
Variable costs
70% of sales
65% of sales
EINNI
Fixed costs .....
Invested capital
$2,150,000
$1,850,000
$1,670,000
$625,000
Chapter 13 Investment Centers and Transfer Pricing
5
Management has determined that in order to upgrade the competitor to Megatronics' standards, an
additional $375,000 of invested capital would be needed.
Required:
As a group, complete the following requirements.
1. Compute the current ROI of the Northeast Division and the division's ROI if the competitor is
acquired.
2. What is the likely reaction of divisional management toward the acquisition? Why?
3. What is the likely reaction of Megatronics' corporate management toward the acquisition? Why?
4. Would the division be better off if it didn't upgrade the competitor to Megatronics' standards?
Show computations to support your answer.
5. Assume that Megatronics uses residual income to evaluate performance and desires a 12 percent
minimum return on invested capital. Compute the current residual income of the Northeast
Division and the division's residual income if the competitor is acquired. Will divisional management
be likely to change its attitude toward the acquisition? Why?
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