Business, 02.06.2020 19:59 adeline12401

As an executive in this company you are concerned with the following: (1) the businesses have little incentive to reduce their request for services from the three service divisions; (2) the service divisions are unable to tie their requested budgets to the value of their services; and (3) some of the businesses may have low returns on capital and should be sold off. To initially address these issues you are imposing an internal pricing system, where each of the three service divisions charges the businesses for the services provided. The expected percentage allocation of the variable costs from each to service division to each business are given in the matrix below. Notice that the sum of any allocations from a service division sum to 1.0.

Allocation share to each business from each service division

Service division 1 2 3 4 5
1 0.10 0.15 0.20 0.25 0.30
2 0.25 0.20 0.15 0.10 0.30
3 0.30 0.20 0.15 0.10 0.25

Required:
a. Use this information to allocate the service divsions' variable costs to the five businesses. Recalculate the return on capital for each of the five businesses. You will enter this information, to three decimal places, in Moodle.
b. Suppose that the market rate of return for similarly risky investments is 14 percent. If you took the approach of Goizueta at Coca-Cola, which businesses should be sold?

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As an executive in this company you are concerned with the following: (1) the businesses have little...

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