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Wesfarmers has a diversified business portfolio that is structured with divisions. Each division can contain more than one strategic business units. Examine the characteristics such as market share and financial performance of the main SBU(s) in its three divisions (Bunnings, Officeworks, and Kmart Group).
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- In a business where the divisions are organized as investment centers, discuss how a division that generates the largest dollar amount of profit among all divisions, could be considered the least profitableamong all divisions?Evaluating investment centers Consider the following data, and determine which of the corporate divisions is more profitable. Explain your reasoning.Carson Electronics’ management has long viewed BGT Electronics as an industry leader and uses this firm as a model firm for analyzing its own performance. The balance sheet and income statements for the two firms are as follows: Calculate the following ratios for both Carson and BGT: a)Total asset turnover: b) Operating profit margin: c) Operating return on assets:
- Nature of the entity's business: For example, if the entity is a huge retailer having several outlets across the country, there is certain management accounting information that will be key to the operations. Such as inventory management system, cost-volume-profit analysis of each retail outlet, return on investment of each outlet, etc.Which of the following statements is true for a company that has managers responsible for product and service lines of business and managers responsible for geographic areas (matrix form of organization)?a. Under U.S. GAAP, the company must base operating segments on geographic areas.b. Under IFRS, the company must base operating segments on product and service lines of business.c. Under U.S. GAAP, the company may choose to define operating segments on the basis of either products and services or geographic areas.d. Under IFRS, the company must refer to the core principle of IFRS 8 to determine operating segments.Two or more operating segments may be aggregated into a single operating segment if the segments have similar economic characteristics, and the segments are similar in which of the following respects: I. the nature of the products and services II. the nature of the production processes III. the type or class of customer for their products and services IV. the methods used to distribute their products or provide their services V. if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities
- Differentiate between centralized and decentralized operations. Differentiate between a profit center and an investment center. 3. Weyerhaeuser developed a system that assigns service department expenses to user divisions on the basis of actual services consumed by the division. Here are a number of Weyerhaeuser's activities in its central Financial Services Department: Payroll Accounts payable Accounts receivable Database administration—report preparation For each activity, identify an activity base that could be used to charge user divisions for service. What is the major shortcoming of using income from operations as a performance measure for investment centers? In a decentralized company in which the divisions are organized as investment centers, how could a division be considered the least profitable even though it earned the largest amount of income from operations? How does using the return on investment facilitate comparability between divisions of decentralized…Evaluating the strategy of a diversified company involves all of the following EXCEPT O assessing the competitive strength of each of the company's business units. O checking for cross business strategic and resource fits. O assessing the attractiveness of the industries the company has diversified into. assessing the functional strategies of each of the company's business units.Large corporations often have many product-based divisions that cater to different markets. Why each division may need its own cost of capital and why the divisional cost of capital may be different between two divisions.
- Choose the correct. Which of the following statements is true for a company that has managers responsible for product and service lines of business and managers responsible for geographic areas (matrix form of organization)?a. Under U.S. GAAP, the company must base operating segments on geographic areas.b. Under IFRS, the company must base operating segments on product and service lines of business.c. Under U.S. GAAP, the company may choose to define operating segments on the basis of either products and services or geographic areas.d. Under IFRS, the company must refer to the core principle of IFRS 8 to determine operating segments.Differentiate between centralized and decentralized operations. In a decentralized company in which the divisions are organized as investment centers, how could a division be considered the least profitable even though it earned the largest amount of income from operations?Large corporations often have many product-based divisions that cater to different markets. Give two reasons why each division may need its own cost of capital and why the divisional cost of capital may be different between two divisions.