Swiss Corporation has three production plants (X, Y, and Z). Following is a summ

Question

Swiss Corporation has three production plants (X, Y, and Z). Following is a summary of the results for January 2009: Plant Revenues Expenses Investment Base (gross assets) X $ 720,000 $ 300,000 $ 1,440,000 Y 960,000 180,000 1,920,000 Z 5,040,000 1,920,000 13,200,000 a. If the plants are treated as profit centers, which plant manager appears to have done the best job?, b. If the plants are treated as investment centers, which plant manager appears to have done the best job? (Assume the plant managers are evaluated by return on investment.) and c. Do the results of profit center analysis and investment center analysis give different findings? If so, why?

Explanation / Answer

c)Yes findings are different under both analysis This is so because under profit center we take decision on basis of profit while under investment center we take decision on basis of ROI.

X Y Z Revenue 720000 960000 5040000 less:expenses (300000) (180000) (1920000) Profit 420000 780000 3120000 Ranking as profit center 3 2 1 Manager of plant Z has done best job. Return on investment 420000/1440000 780000/1920000 3120000/13200000 .2917 or 29.17% .4063 or 40.63% .2364 or 23.64% Ranking as investment center 2 1 3 manager of plan B has done better job

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