Is the capital investment proposal described in Exhibit 3 an attractive one for Quality Metal Service Center? -. Should Ken Richards send that proposal to home office for approval? . Comment on the general usefulness of ROA as the basis of evaluating district managers' performance. Could this performance measure be made more effective? 1. In deciding the investment base for evaluating managers of investment centers, the general question is: What practices will motivate the district managers to use their assets most efficiently and to acquire the proper amount and kind of new assets? Presumably, whex his return on assets is being measured, the district manager will try to increase his ROA, and we desire that the actions he takes toward this end be actions that are in the best interest of the whole corporation. Given this general line of reasoring, evaluate the way Quality computes the 'investment base' for its districts. For each asset category, discuss whether the basis of measurement used by the company is the best for the purpose of measuring districts' return on assets. What are the likely motivational problems that could arise in such a system? What can you recommend to overcome such dysfunctional effects? 5. While computing district profits for performance evaluation purposes, should there be a charge for income taxes? Should corporate overheads be allocated to districts? Should profits be computed on the basis of historical costs or on the basis of replacement costs? Evaluate these Is the capital investment proposal described in Exhibit 3 an attractive one for Quality Metal Service Center? -. Should Ken Richards send that proposal to home office for approval? . Comment on the general usefulness of ROA as the basis of evaluating district managers' performance. Could this performance measure be made more effective? 1. In deciding the investment base for evaluating managers of investment centers, the general question is: What practices will motivate the district managers to use their assets most efficiently and to acquire the proper amount and kind of new assets? Presumably, whex his return on assets is being measured, the district manager will try to increase his ROA, and we desire that the actions he takes toward this end be actions that are in the best interest of the whole corporation. Given this general line of reasoring, evaluate the way Quality computes the 'investment base' for its districts. For each asset category, discuss whether the basis of measurement used by the company is the best for the purpose of measuring districts' return on assets. What are the likely motivational problems that could arise in such a system? What can you recommend to overcome such dysfunctional effects? 5. While computing district profits for performance evaluation purposes, should there be a charge for income taxes? Should corporate overheads be allocated to districts? Should profits be computed on the basis of historical costs or on the basis of replacement costs? Evaluate these
