The Star Paper Division of Royal Industries islocated near Los Angeles. A major expansion ofthe division’s only plant was completed in April2015. The expansion consisted of an addition to theexisting building, additions to the production linemachinery, and the replacement of obsolete andfully depreciated equipment that was no longer efficientor cost-effective.of Star. Harris had a meeting with Marie Fortner,vice president of operations for Royal, whoexplained to Harris that the company measured theperformance of divisions and division managers onthe basis of return on gross assets (ROA). WhenHarris asked if other measures were used in conjunctionwith ROA, Fortner replied, “Royal’s topmanagement prefers to use a single performancemeasure. Star should do well this year now that ithas expanded and replaced all of that old equipment.You should have no problem exceeding the division’shistorical rate. I’ll check with you at the endof each quarter to see how you are doing.” Fortnercalled Harris after the first quarter results were completedbecause Star’s ROA was considerably belowthe historical rate for the division. Harris toldFortner that he did not believe that ROA was avalid performance measure for Star. Fortner indicatedthat she would discuss this with others at headquartersand get back to Harris. However, there wasno further discussion of the use of ROA but onlyreports on divisional performance at the end of thesecond and third quarters. Now that the fiscal yearhas ended, Harris has received the memorandum inthe figure designated for Problem 14.Harris is looking forward to meeting with Fortneras he plans to pursue the discussion about the appropriatenessof ROA as a performance measure forStar. While the ROA for Star is below historicallevels, the division’s profits for the year are higherthan at any previous time. Harris is going to recommendthat ROA be replaced with multiple criteriafor evaluating performance—namely, dollar profit,receivable turnover, and inventory turnover.Requireda. Identify general criteria that should be used inselecting performance measures to evaluate operatingmanagers.b. Describe the probable cause of the decline in theStar Paper Division’s return on gross assets duringthe fiscal year ended April 30, 2007.c. On the basis of the relationship between Fortnerand Harris, as well as the memorandum fromFortner, discuss apparent weaknesses in the performanceevaluation process at Royal Industries.d. Discuss whether the multiple performance evaluationcriteria that Harris suggested would beappropriate for the evaluation of the Star PaperDivision.

The Star Paper Division of Royal Industries islocated near Los Angeles. A major expansion ofthe division’s only plant was completed in April2015. The expansion consisted of an addition to theexisting building, additions to the production linemachinery, and the replacement of obsolete andfully depreciated equipment that was no longer efficientor cost-effective.of Star. Harris had a meeting with Marie Fortner,vice president of operations for Royal, whoexplained to Harris that the company measured theperformance of divisions and division managers onthe basis of return on gross assets (ROA). WhenHarris asked if other measures were used in conjunctionwith ROA, Fortner replied, “Royal’s topmanagement prefers to use a single performancemeasure. Star should do well this year now that ithas expanded and replaced all of that old equipment.You should have no problem exceeding the division’shistorical rate. I’ll check with you at the endof each quarter to see how you are doing.” Fortnercalled Harris after the first quarter results were completedbecause Star’s ROA was considerably belowthe historical rate for the division. Harris toldFortner that he did not believe that ROA was avalid performance measure for Star. Fortner indicatedthat she would discuss this with others at headquartersand get back to Harris. However, there wasno further discussion of the use of ROA but onlyreports on divisional performance at the end of thesecond and third quarters. Now that the fiscal yearhas ended, Harris has received the memorandum inthe figure designated for Problem 14.Harris is looking forward to meeting with Fortneras he plans to pursue the discussion about the appropriatenessof ROA as a performance measure forStar. While the ROA for Star is below historicallevels, the division’s profits for the year are higherthan at any previous time. Harris is going to recommendthat ROA be replaced with multiple criteriafor evaluating performance—namely, dollar profit,receivable turnover, and inventory turnover.Requireda. Identify general criteria that should be used inselecting performance measures to evaluate operatingmanagers.b. Describe the probable cause of the decline in theStar Paper Division’s return on gross assets duringthe fiscal year ended April 30, 2007.c. On the basis of the relationship between Fortnerand Harris, as well as the memorandum fromFortner, discuss apparent weaknesses in the performanceevaluation process at Royal Industries.d. Discuss whether the multiple performance evaluationcriteria that Harris suggested would beappropriate for the evaluation of the Star PaperDivision.

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

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Question

The Star Paper Division of Royal Industries is
located near Los Angeles. A major expansion of
the division’s only plant was completed in April
2015. The expansion consisted of an addition to the
existing building, additions to the production line
machinery, and the replacement of obsolete and
fully depreciated equipment that was no longer efficient
or cost-effective.of Star. Harris had a meeting with Marie Fortner,
vice president of operations for Royal, who
explained to Harris that the company measured the
performance of divisions and division managers on
the basis of return on gross assets (ROA). When
Harris asked if other measures were used in conjunction
with ROA, Fortner replied, “Royal’s top
management prefers to use a single performance
measure. Star should do well this year now that it
has expanded and replaced all of that old equipment.
You should have no problem exceeding the division’s
historical rate. I’ll check with you at the end
of each quarter to see how you are doing.” Fortner
called Harris after the first quarter results were completed
because Star’s ROA was considerably below
the historical rate for the division. Harris told
Fortner that he did not believe that ROA was a
valid performance measure for Star. Fortner indicated
that she would discuss this with others at headquarters
and get back to Harris. However, there was
no further discussion of the use of ROA but only
reports on divisional performance at the end of the
second and third quarters. Now that the fiscal year
has ended, Harris has received the memorandum in
the figure designated for Problem 14.
Harris is looking forward to meeting with Fortner
as he plans to pursue the discussion about the appropriateness
of ROA as a performance measure for
Star. While the ROA for Star is below historical
levels, the division’s profits for the year are higher
than at any previous time. Harris is going to recommend
that ROA be replaced with multiple criteria
for evaluating performance—namely, dollar profit,
receivable turnover, and inventory turnover.
Required
a. Identify general criteria that should be used in
selecting performance measures to evaluate operating
managers.
b. Describe the probable cause of the decline in the
Star Paper Division’s return on gross assets during
the fiscal year ended April 30, 2007.
c. On the basis of the relationship between Fortner
and Harris, as well as the memorandum from
Fortner, discuss apparent weaknesses in the performance
evaluation process at Royal Industries.
d. Discuss whether the multiple performance evaluation
criteria that Harris suggested would be
appropriate for the evaluation of the Star Paper
Division.

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