Return on Investment Cooper

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Overview This case, as the Happy Chips Case does, illustrates the point that it is important to know where your costs and profits come from. It extends the point of Happy Chips by also introducing consideration of asset investments and return on assets. In this case, a new cost accountant introduces segmental profitability, contribution margin, and the strategic profit model to Cooper Processing Company to aid in analysis of two different distribution channels. Note to Instructors: Because this case is short and the required math is quite simple, we often use this case as part of an exam or an in-class quiz! Solutions to Questions The accompanying PowerPoint slides contain the answers to the first two questions. 1.…show more content…
Similarly, $1,200,000 and $100,000 for the Food Service Channel must be included. When these two expense categories are included for the two distribution channels, the total of unallocated (indirect expense) is reduced to $12,600,000 (not $15,000,000). Some students will argue that this activity-based approach didn’t really provide much insight since both channels are profitable. It should be strongly emphasized that, while it is true that both are profitable, the “net profit” approach is still quite misleading. From slide 1, one might conclude that both channels are equally profitable in terms of both dollar profits and profit percentage. Slide 2 clearly indicates that it is the Food Service channel that is making a substantially greater contribution to overall profitability of the company. 2. What is the “ROA” of each channel? Slides 3 and 4 provide strategic profit model analyses of the two channels. For the Retail Channel, direct asset investments include inventory, accounts receivable, and the labeling machine. For the Food Service channel the only direct asset investments are inventory and accounts receivable. The result is that the Food Service channel has a substantially higher ROA on the assets that are directly associated with it. 3. Any recommendations? Again, many students

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