PLEASE HELP ME WITH PROBLEM 25.2A I DONT UNDERSTAND

PROBLEM 25.2A

Empire Hotel and Balanced Scorecard

Consider the Empire Hotel discussed in Problem 25.1A. The manager of the restaurants department complains that sales and resulting earnings for the restaurants are not higher due to the poor reputation of the hotel rooms department. Because the hotel rooms department does not have the best housekeeping staff, the overall reputation of the hotel is slipping. The manager of the hotel rooms department counters that, to keep operating expenses under control and improve ROI, wages for housekeeping have been cut. The manager of the restaurants department has requested page 1112that other evaluation techniques such as residual income or a balanced scorecard approach be considered in an effort to resolve this problem.

Instructions

Consider which balanced scorecard measures might be useful to the Empire Hotel in evaluating the hotel rooms department. In doing so, identify the following.

A. The organizational goal that the measure is designed to support.

B. The employee resources and efforts that will be affected by the measurement.

C. How the employees should receive feedback and be rewarded for progress toward achieving the goals.

PROBLEM 25.1A

Empire Hotel

The Empire Hotel is a full-service hotel in a large city. Empire is organized into three departments that are treated as investment centers. Budget information for the coming year for these three departments is shown as follows. The managers of each of the departments are evaluated and bonuses are awarded each year based on ROI.

Empire Hotel Hotel Rooms Restaurants Health Spa Average investment $10,000,000 $6,250,000 $1,250,000 Sales revenue $11,250,000 $2,500,000 $ 800,000 Operating expenses 9,450,000 1,625,000 650,000 Operating earnings $1,800,000 $ 875,000 $ 150,000 Instructions

Compute the ROI for each department. Use the DuPont method to analyze the return on sales and capital turnover.

Assume the Health Spa is considering installing new exercise equipment. Upon investigating, the manager of the division finds that the equipment would cost $60,000 and that operating earnings would increase by $10,800 per year as a result of the new equipment. What is the ROI of the investment in the new exercise equipment? What impact does the investment in the exercise equipment have on the Health Spa's ROI? Would the manager of the Health Spa be motivated to undertake such an investment?

Compute the residual income for each department if the minimum required return for the Empire Hotel is 15 percent. What would be the impact of the investment in (b) on the Health Spa's residual income?