The directors of Gaston Bridge plc (GB) are meeting to discuss the annual divisional performance statements produced by the company’s five divisions. The target ROI for all divisions is 10.7%, and the divisions have all managed to turn in performance in excess of that figure, with the highest ROI of 12.6% from Division X. One recently-appointed director is unimpressed by these figures. Before joining GB, he had been manufacturing director at Darron Smith plc, one of GB’s major competitors. He tells his fellow directors that they should be expecting a much better performance from their divisions: ‘ROI of 10.7% is too low a target. At Darron Smith, our divisional targets were always in excess of 20%, and divisions generally managed to meet them. We’re not setting our sights high enough’. Suggest reasons why the comparison between ROI in the two companies might be invalid.”

The directors of Gaston Bridge plc (GB) are meeting to discuss the annual divisional performance statements produced by the company’s five divisions. The target ROI for all divisions is 10.7%, and the divisions have all managed to turn in performance in excess of that figure, with the highest ROI of 12.6% from Division X. One recently-appointed director is unimpressed by these figures. Before joining GB, he had been manufacturing director at Darron Smith plc, one of GB’s major competitors. He tells his fellow directors that they should be expecting a much better performance from their divisions: ‘ROI of 10.7% is too low a target. At Darron Smith, our divisional targets were always in excess of 20%, and divisions generally managed to meet them. We’re not setting our sights high enough’. Suggest reasons why the comparison between ROI in the two companies might be invalid.”

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter18: Pricing And Profitability Analysis

Section: Chapter Questions

Problem 36P: Dantrell Palmer has just been appointed manager of Kirchner Glass Products Division. He has two...

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