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483
MBA 14–4
1. Financial
484
MBA 14–5
This activity is designed to introduce students to two very popular divisional per-
formance measurement approaches, the balanced scorecard and economic value
added (EVA). Both methods are getting very strong support in corporate America.
The two consulting firms’ home pages provided in this activity have links to brief
485
CASES
Case 14–1
This scenario is a negotiation between two divisions. Newt is not behaving unethically
by attempting to get a good price from the Optic Lens Division. Also, he is not behav-
ing unethically because he refuses market price. This may not seem “fair,” but price
negotiation is a typical business activity and is part of Newt’s job. It would be unethi-
having unethically, Tani’s price position appears to be the weakest.
Case 14–2
The department head is responsible for the quantity of service but not the source of
the service (i.e., not the price). Most accountants would hold the department head re-
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Case 14–3
1. The return on invested assets is computed as follows:
Cereal
Produce Snacks
2. Not all projects that have greater than a 10% return would be accepted. This
3. Return on Investment = Operating Income
Invested Assets
4. There are two approaches to improving Dixie Foods’ overall return on invest-
ment of 14.1%: (1) improving the profit margin or (2) improving the investment
turnover. The profit margin for all three divisions is as follows:
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Case 14–4
1. 20Y6 20Y7 20Y8
Profit margin ............................................ 30% 35% 40%
2. 20Y6 20Y7 20Y8
Investment turnover ................................ 1.5 1.0 0.7
3. 20Y6 20Y7 20Y8
Return on investment ............................. 45% 35% 28%
4. Hal is concerned about the Laser Division because the return on investment ap-
pears to be deteriorating over the 20Y6–20Y8 operating period. This is happening
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Case 14–5
1. Return on Investment = Operating Income
Invested Assets
3. Return on Investment = Operating Income
Invested Assets
4. Return on Investment = Operating Income
Invested Assets
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Case 14–5, Concluded
5. Even though the addition of the new product line would increase the overall
6. Use of residual income as a performance measure and as the basis for grant-
ing bonuses would motivate division managers to accept investment oppor-
