20 fixed for a cost accounting expert..due in 4 hours ......

1. Buffay Book Company has two divisions: The Brick and Mortar division sells books through more than 100 bookstores throughout the United States; the Internet division was formed 18 months ago and sells books via the Internet. Data for the past year are:

                                                           Brick and Mortar                     Internet 

                                                                          Division                    Division

Operating assets                                       $ 172,200,000            $ 14,400,000

Total revenues                                            285,600,000               86,500,000

Net operating income                                    27,740,000                    985,000

Cost of capital                                                         13%                          15%

# of full-time equivalent employees                         900                           360

1. Compute the return on investment (ROI) of each division, and break down each division’s ROI into components that measure operating efficiency and the efficiency in asset utilization. Based on the information above, would you expect any difference between the ROIs of each division?

1. Presented below are some average financial statistics (over the past three years) of two of Buffay’s competitors—Bing Bookstore, a largely brick-and-mortar book retailer, and Rainforest.com, which sells books (and all sorts of other things) over the internet. Given these data, how would you suggest improving the ROI of each division of Buffay Book Company? What other information would be helpful in measuring the performance of each division?

                                                                          Bing Bookstore               Rainforest.com

Net operating profit margin                              0.0%                               1.8%

Operating asset turnover                                    3.75                                4.63

1. The CFO of Buffay has solicited feedback on how to improve the system of performance measurement at the company, and has received the suggestions below. Evaluate each of the following proposals. Explain how these may (or may not) improve the performance measurement and evaluation system.

1. a) Construct and implement two balanced scorecards, one for each division, and measure performance of both managers.

1. b) Include a total-company financial performance metric (such as total-company ROI) in each manager’s compensation contract.

1. c) Evaluate the performance of each manager subjectively.

1. d) Establish a belief system by articulating the company’s mission statement (which has not been created).