Overview
Discussion Questions
DQ - 1
Using the GCU Library locate a journal article about the balanced scorecard. In the subject line of your post, include the name of the article that you read. Then, in your initial post, provide a link to the article and a summary followed by your reaction to the article. The summary should be approximately 250 words and the reaction should be approximately 150 words. The summary should describe the major points of the article, and the reaction should demonstrate your interpretation of the article and how you can apply that knowledge. Do not choose an article that one of your classmates has already posted. To participate in follow-up discussion, choose one of the articles that a classmate has posted and provide your own reaction to it. Note: It will be challenging to find a relevant article if you do not use the library.
Please include proper citations in your discussion post. Points will be deducted if proper citations are not used.
DQ - 2
Review Case 10.32 in your textbook. Using the questions provided as a guide, discuss your suggested strategy(ies) for improving ROI and the steps that the company would have to implement to obtain the desired result(s).
To participate in follow-up discussion, ask questions and post comments regarding classmates' posts, or respond to follow-up questions posted by the instructor.
Please include proper citations in your discussion post. Points will be deducted if proper citations are not used.
C&C Sports continuing case
10.32 (LO 3) Return on investment After seeing the results of the segment analysis for the Nylon Fibers division, James Cameron wants all three divisions focusing on the correct avenues for improving division performance. Refer to Exhibit 10.4 and the related information on page 10-14 to answer the following questions.
Required
1. Calculate the margin and asset turnover for Centex Yarns’ three divisions. Show that margin × asset turnover equals the return on investment for each division as reported in the text.
2. Compare the margin and asset turnover for the three divisions and make suggestions for increasing the return on investment of each division.
EXHIBIT 10.4 Segment margin income statement for Centex Yarns.
Reality Check
The whole isn’t always greater than the sum of its parts
Organizations frequently develop synergies between two or more of their operating segments. The resulting corporate value can be greater than the sum of the segment values. However, some segments may not contribute value to the organization. In that case, managers must take corrective action, even if it means closing the segment.
Following a leadership change and review of its operations, Campbell Soup Co. decided to focus on its packaged foods and snacks segments in the North American market. As a result, the company decided to sell its refrigerated foods and international businesses.
Similarly, Newell Brands adopted its “Accelerated Transformation Plan” designed to increase the company’s value. During the plan’s development, managers identified approximately 35% of the company’s net sales came from non-core businesses. According to CEO Michael Polk, the company has begun selling these units, including Josten’s, Rawlings Sporting Goods, U.S. Playing Cards, and Rubbermaid Commercial Products, to create a “simpler, stronger, and faster company.”
Sources: Annie Gasparro and Cara Lombardo, “Campbell Soup to Sell International Business and Fresh Unit,” The Wall Street Journal, August 30, 2018, https://www.wsj.com/articles/campbell-soup-plans-t... (accessed November 19, 2018), Lucas Laursen, “Why Campbell Soup is Selling Its ‘Fresh’ Business”, Fortune, August 30, 2018, http://fortune.com/2018/08/30/campbell-soup-fresh-... (accessed November 29, 2018); Newell Brands Announces Details of Transformation Plan and First Quarter 2018 Results, May, 4, 2018, https://www.businesswire.com/news/home/20180504005... (accessed November 19, 2018); Newell Brands Completes Divestitures of The Waddington Group and Rawlings Sporting Goods Company, Inc., June 29, 2018, https://ir.newellbrands.com/news-releases/news-rel... (accessed November 19, 2018).
Notice what happens to the evaluation of the Nylon Fibers division when allocated common fixed costs are removed from the analysis. This division is actually covering its variable costs plus all its traceable fixed costs, and it is contributing an additional $865,000 toward covering the company’s common fixed costs. If this division were eliminated, as James Cameron is inclined to do, the company’s net operating income would decrease by $865,000. So closing the division appears to be a poor decision.
WATCH OUT!
Several terms can be used in referring to common costs, including allocated costs and unavoidable costs. In preparing a segment margin income statement, instead of looking for a certain phrase that describes the cost (e.g., traceable or common), look for the reason the cost was incurred. If it was incurred specifically for the segment, then it is a traceable cost. If it was incurred to support the company as a whole, then it is a common cost.
When Traceable Fixed Costs Become Common Costs
As an organization is broken down into finer segments, costs that were traceable fixed costs at one level may become common fixed costs at a lower level. Let’s look at the Nylon Fibers division in more detail. This division has two groups, Textile Yarns and Industrial Yarns. Monica Waltrip treats each group as a profit center and uses segment margin analysis to evaluate each group’s financial performance. Exhibit 10.5 presents the Nylon Fibers division’s segment margin income statement.
A screenshot of an Excel worksheet illustrates a segment margin income statement of Centex Yarns' Nylon Fibers division. There are four columns where the first column displays account labels and the remaining columns are titled, Textile Yarns Group, Industrial Yarns Group, and Nylon Fibers Division. The statement has two sections. The account labels and corresponding values in the income statement are as follows: Revenues: Textile Yarns Group, $6,055,000; Industrial Yarns Group, $2,595,000, and Nylon Fibers Division, $8,650,000. The first section is labeled as less variable expenses and their labels are: Costs of goods sold: Textile Yarns Group, 3,168,400; Industrial Yarns Group, 1,245,600, and Nylon Fibers Division, 4,414,000. Selling and administrative are: Textile Yarns Group, 683,000; Industrial Yarns Group, 207,000, and Nylon Fibers Division, 890,000. Contribution margin, calculated by subtracting selling and administrative from cost of goods sold, is: Textile Yarns Group, 2,203,600; Industrial Yarns Group, 1,142,400, and Nylon Fibers Division, 3,346,000. The second section is labeled as less traceable fixed expenses and their labels are: Costs of goods sold: Textile Yarns Group, 744,400; Industrial Yarns Group, 415,200, and Nylon Fibers Division, 1,159,600. Selling and administrative are: Textile Yarns Group, 191,100; Industrial Yarns Group, 81,900, and Nylon Fibers Division, 273,000. The next line displays Segment margin which is calculated by adding selling and administrative with cost of goods sold and subtracting the resultant amount from the contribution margin. The Segment margins are: Textile Yarns Group, $1,268,100; Industrial Yarns Group, $645,300, and Nylon Fibers Division, $1,913,400. The common fixed expenses is 1,048,400 and is shown exclusively in the column titled, Total. The final line displays the net operating income, calculated by subtracting common fixed expenses from Segment margin, $865,000.