Problem:
Spruce Enterprises operates a chain of lumber stores. In 2008, corporate management examined industry-level data and determined the following performance targets for lumber retail stores:
|
Asset turnover
|
1.7
|
|
Profit margin
|
8.00%
|
The actual 2008 results for the company's lumber retail stores area as follows:
|
Total assets at beginning of year
|
10,200,000
|
|
Total assets at end of year
|
12,300,000
|
|
Sales
|
28,250,000
|
|
Operating expenses
|
25,885,000
|
a. For 2008, how did the lumber retail stores perform relative to their industry norms?
b. Where, as indicated by the performance measures, are the most likely areas to improve performance in the retail lumber stores?
c. What are the advantages and disadvantages of setting a performance target at the start of the year compared with one that is determined at the end of the year based on actual industry performance?