Senior management is concerned that solely focus on ROI in measuring divisional performance could have an adverse long-run effect on Fairmont Publishing’s customers. What other measurement, if any, would you recommend Fairmont to use? Explain The OakTree Group is a 75-year old company founded in Hong Kong. The Group comprises of two majorbusinesses: a publishing business known as Fairmont Publishing and an insurance business namedGeneralife. The Group is currently organized in a decentralized manner with two businesses running asinvestment centers. However, with the recent retirement of many senior staff in OakTree, the CEO is verymuch concerned regarding the performance of the company under a new generation of leadership. In fact,the CEO is considering the possibility of restructuring the Group into a centralized structure.Fairmont Publishing is organized as a divisional structure with the presence of two divisions: Printed Mediaand Online Media. The following are summary financial information for 2019 and 2020:Printed MediaOnline Media2019202020192020SalesSG&A expensesCurrent assetsCost of goods soldFixed assetsCurrent liabilitiesCost of CapitalRequired rate of return$18,900$6,590$5,670$8,530$12,810$5,380$19,320$6,520$6.600$8,180$13,980$25,200$6,092$4,050$18,562$7,290$26,880$8,564$4,250$17,644$8,350$4,460$6,530$4,35013%16%16%13%15%15%15%15%Tax Rate40%40%40%40%Note: All dollar figures are in thousand dollars.According to Fairmont's policy, the divisional managers' bonuses are solely based on divisional ROI. If adivision reports an increase in ROI from previous year, its management is automatically eligible for a bonus;however, the management of a division reporting a decline in ROI has to present an explanation to thesenior management of the Group and is unlikely to get any bonus.Manager of the Printed Media division, Sam Chan, is considering a proposal to invest $800,000 in a newdigital imagining and printing system for Year 2021. Sam believes that the new state-of-the-art system willincrease the divisional operating income by $120,000.Generalife spends considerable resources on processing claims. Short, accurate processing is desirablebecause both customers and the company benefit by resolving claims satisfactorily and by using minimumresources to do so. To improve its insurance claims processing, Generalife began a pilot project in itsKolwoon claims office to track the time to process each new automobile loss claim during a recent quarter.Processing time begins when a company representative receives a claim and ends when the final settlementis reached. Following are time data related to processing these claims at the company's Kowloon office.Average 8-Hour Days Spent inRevision andCorrections0.120.110.150.280.440.882.6Days toProcessing byAdjusters0.250.340.651.32.42.93.1Waiting forAdjusters3.58.19.49.1Waiting forInformation4.1Complete Percent Number4%10%30%24%19%8%5%0-1011-2021-3031-4041-5051-60> 6011,52028,80086,40069,12054,72023,04014,40010.115.225.631.438.249.711.912.311.5

When we talk about the metrics and performance indicators that can be used to measure the success of…

Senior management is concerned that solely focus on ROI in measuring divisional performance could have an adverse long-run effect on Fairmont Publishing’s customers. What other measurement, if any, would you recommend Fairmont to use? Explain

Senior management is concerned that solely focus on ROI in measuring divisional performance could have an adverse long-run effect on Fairmont Publishing’s customers. What other measurement, if any, would you recommend Fairmont to use? Explain

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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