√ Decision Case
(30 min.) Decision Case 1
Req. 1
The two product segments are: 1) Oral, Personal and Home Care, and
2) Pet Nutrition.
Operating Identifiable
(In millions of dollars) Income Net Sales Assets
Oral, Personal and Home
Care 2,799.4 11,930.6 9,137.2
Pet Nutrition 487.8 1,859.1 745.5
Req. 2
ROI calculation:
Operating Identifiable
(In millions of dollars) Income Assets ROI
Oral, Personal and Home
Care 2,799.4 9,137.2 30.64%
Pet Nutrition 487.8 745.5 65.43%
Req. 3
The Pet Nutrition Division has a much higher ROI than the Oral,
Personal and Home Care Division. The expanded ROI formula may
offer some clues as to why this is the case. Sales margin and capital
turnover are calculated below:
, Decision Case 1
Req. 3 (continued)
Sales Margin calculation:
Operating Sales
(In millions of dollars) Income Net Sales Margin
Oral, Personal and Home
Care 2,799.4 11,930.6 23.46%
Pet Nutrition 487.8 1,859.1 26.24%
Capital Turnover calculation:
Identifiable Capital
(In millions of dollars) Net Sales Assets Turnover
Oral, Personal and Home
Care 11,930.6 9,137.2 1.31
Pet Nutrition 1,859.1 745.5 2.49
The primary reason Pet Nutrition has a higher ROI is that it has a much
higher capital turnover. The Pet Nutrition Division has been able to
generate $2.49 of sales on each dollar of its assets, whereas the Oral,
Personal and Home Care Division has only been able to generate $1.31
of sales on each dollar of its assets. Additionally, the Pet Nutrition
Division is earning almost three cents more of income on every dollar
of sales (26.24% vs. 23.46%). Both factors combined give the Pet
Nutrition Division an extremely high ROI.
, Decision Case 1
Req. 4
The management team would most likely choose to allocate additional
funds to the Pet Nutrition Division. The Pet Nutrition Division is
earning $0.65 on every dollar invested whereas the Oral, Personal and
Home Care division is only earning about $0.31 on every dollar
invested. The Pet Nutrition Division is yielding over twice the return of
the other division.
, √ Ethical Issue
Ethical Issue
Req.1
Irwin’s bonus is based on reducing production costs. The purchase of
cheaper paper will meet this goal and Irwin will be rewarded. However,
cheaper components may hurt the product line’s quality and the
company’s reputation may suffer. This could lead to a decrease in
sales and the sustainability of the company will be in jeopardy.
Irwin should discuss this conflict of interest with her supervisor. She
should explain how her performance evaluation does not align with
company goals. The focus on short-term performance (cutting costs)
may not help the company achieve its long-term performance goals.
Irwin’s evaluation should balance financial measures with operating
measures such as customer satisfaction and operational efficiency.
√ Team Project
Student papers or reports will vary depending on the companies they
select for analysis.
(30 min.) Decision Case 1
Req. 1
The two product segments are: 1) Oral, Personal and Home Care, and
2) Pet Nutrition.
Operating Identifiable
(In millions of dollars) Income Net Sales Assets
Oral, Personal and Home
Care 2,799.4 11,930.6 9,137.2
Pet Nutrition 487.8 1,859.1 745.5
Req. 2
ROI calculation:
Operating Identifiable
(In millions of dollars) Income Assets ROI
Oral, Personal and Home
Care 2,799.4 9,137.2 30.64%
Pet Nutrition 487.8 745.5 65.43%
Req. 3
The Pet Nutrition Division has a much higher ROI than the Oral,
Personal and Home Care Division. The expanded ROI formula may
offer some clues as to why this is the case. Sales margin and capital
turnover are calculated below:
, Decision Case 1
Req. 3 (continued)
Sales Margin calculation:
Operating Sales
(In millions of dollars) Income Net Sales Margin
Oral, Personal and Home
Care 2,799.4 11,930.6 23.46%
Pet Nutrition 487.8 1,859.1 26.24%
Capital Turnover calculation:
Identifiable Capital
(In millions of dollars) Net Sales Assets Turnover
Oral, Personal and Home
Care 11,930.6 9,137.2 1.31
Pet Nutrition 1,859.1 745.5 2.49
The primary reason Pet Nutrition has a higher ROI is that it has a much
higher capital turnover. The Pet Nutrition Division has been able to
generate $2.49 of sales on each dollar of its assets, whereas the Oral,
Personal and Home Care Division has only been able to generate $1.31
of sales on each dollar of its assets. Additionally, the Pet Nutrition
Division is earning almost three cents more of income on every dollar
of sales (26.24% vs. 23.46%). Both factors combined give the Pet
Nutrition Division an extremely high ROI.
, Decision Case 1
Req. 4
The management team would most likely choose to allocate additional
funds to the Pet Nutrition Division. The Pet Nutrition Division is
earning $0.65 on every dollar invested whereas the Oral, Personal and
Home Care division is only earning about $0.31 on every dollar
invested. The Pet Nutrition Division is yielding over twice the return of
the other division.
, √ Ethical Issue
Ethical Issue
Req.1
Irwin’s bonus is based on reducing production costs. The purchase of
cheaper paper will meet this goal and Irwin will be rewarded. However,
cheaper components may hurt the product line’s quality and the
company’s reputation may suffer. This could lead to a decrease in
sales and the sustainability of the company will be in jeopardy.
Irwin should discuss this conflict of interest with her supervisor. She
should explain how her performance evaluation does not align with
company goals. The focus on short-term performance (cutting costs)
may not help the company achieve its long-term performance goals.
Irwin’s evaluation should balance financial measures with operating
measures such as customer satisfaction and operational efficiency.
√ Team Project
Student papers or reports will vary depending on the companies they
select for analysis.
