Determining Returns on Investment and Performance
Costs related to the expansion and enhancement of an organization can be just as essential (and large) as costs related to routine business operations. It is important for companies to avoid stagnation and remain abreast of market trends and innovation. This can be achieved through marketing and research and development (R&D), which, as all other business functions, need funding and budgeting. As an HR manager, think about how innovation can be encouraged through initiatives which reward and develop employees.
For this week’s Application, you will analyze costs related to marketing and R&D. You will review the following scenarios and information and use the concepts of return on investment, performance, and other ideas introduced in this week’s Resources to draw conclusions related to questions posed in the prompts.
You will set up and use an Excel spreadsheet for all your calculations for the problems below, and the spreadsheet you develop should be what you turn in for the Application. Note: The Resources section includes tutorials for those who might need help in designing and using an Excel spreadsheet.
Budgeted costs for his department for the month of April were:
Actual costs for the month of April were:
Determine the variances for each cost for which Brent is responsible. Then, as the plant manager, write a memo to Brent analyzing your findings and discussing how you want to proceed.
Leavitt’s Lumber Company’s ROI has ranged from 17.2% to 19% since it was acquired. Leavitt’s had an investment opportunity in 2010 that had an estimated ROI of 16%. At the end of 2010, it was determined that Leavitt’s Lumber ROI for the year was 17%. Residual income for Leavitt’s Lumber in 2010 was $150,000.
As part of the management team at Leavitt’s Lumber, if you used ROI as the performance measure, would you have accepted the investment opportunity? If you had used residual income as the performance measure, would you have accepted the investment opportunity? Explain in detail your decision.
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