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TUTORIAL 12: Divisional Financial Performance Measures Answer All Questions Given. Discussion Question

This document provides details for a tutorial on divisional financial performance measures for the course UBAM3013 Management Accounting in May 2022. It includes exercises evaluating return on investment (ROI) and residual income (RI) for two companies, Beek Limited and Carlo Alley. For Beek Limited, students are asked to calculate ROI and RI for their current performance and a new business opportunity. For Carlo Alley, students must also calculate ROI and RI for their current performance and a potential new opportunity from Solaris Corporation.

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116 views3 pages

TUTORIAL 12: Divisional Financial Performance Measures Answer All Questions Given. Discussion Question

This document provides details for a tutorial on divisional financial performance measures for the course UBAM3013 Management Accounting in May 2022. It includes exercises evaluating return on investment (ROI) and residual income (RI) for two companies, Beek Limited and Carlo Alley. For Beek Limited, students are asked to calculate ROI and RI for their current performance and a new business opportunity. For Carlo Alley, students must also calculate ROI and RI for their current performance and a potential new opportunity from Solaris Corporation.

Uploaded by

XIN HUI CHUAH
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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UBAM3013 MANAGEMENT ACCOUNTING

MAY 2022 Tutorial

UNIVERSITI TUNKU ABDUL RAHMAN


FACULTY OF BUSINESS AND FINANCE

ACADEMIC YEAR 2022/2023


TRIMESTER MAY 2022

BACHELOR OF BUSINESS ADMINISTRATION (HONS)


BACHELOR OF FINANCE (HONS)

TUTORIAL 12: Divisional Financial Performance Measures

Answer all questions given.

Discussion question.
1. When evaluating business units or divisions, it is important to distinguish between
financial and non-financial types of measures. Explain.

Exercises.

2. Beek Limited is a company that produce air filter. Beek’s is currently gathering its
financial information for the year ended 30 June 2022. The details are given
below:

Manufacturing costs: RM
Direct material 66,000
Direct labour 78,000
Variable manufacturing overhead 56,500
Fixed manufacturing Overhead 96,000
Non-manufacturing costs:
Variable selling 51,200
Variable administrative 48,000
Fixed selling and distribution 88,600
Fixed administrative 31,500

The company currently reported it sales revenue at RM916,348. Meanwhile


the average operating asset are reported at RM2,670,320. The board of
Beek Limited has set a minimum require rate of return of 14%.

Required:
UBAM3013 MANAGEMENT ACCOUNTING
MAY 2022 Tutorial

(i) By showing all relevant workings, compute Beek’s Return on


Investment (ROI) and Residual Income (RI) for the period.

(ii) The company is currently investigating a new opportunity from a


foreign wholesaler to supply the product to their company. The new
opportunity requires an additional average operating assets of
RM26,900 for the new equipment. The business opportunity is
expected to contribute an additional of sales revenue RM95,600. Total
variable manufacturing cost will increase by 25%, meanwhile fixed non-
manufacturing cost will increase with additional RM14,400 of total
current fixed non-manufacturing cost. All other costs remain the same.

Compute new ROI and RI. Show all relevant workings.

(iii) By referring (ii), analyse the business opportunity, would you accept or
reject the opportunity. Explain.

3. Carlo Alley is a specialist company that produce and distribute water filter system
throughout Peninsular Malaysia. At present, the company’s performance is
evaluated based on the return on investment (ROI). The investment manager has
the authority to make investment as needed to improve the company’s
performance. The minimum required rate of return on operating assets is 12%.
Data concerning the most recent year are as below:

RM
Sales (8,000 units) 400,000
Operational Costs:
Variable cost 219,200
Fixed cost 110,000
Net Operating Income 70,800
Net Operating Income after Interests and 66,552
Taxes

Average Operating Assets 283,200

Required:

(i) Compute Carlo Alley’s return on investment (ROI) and residual income
(RI).

(ii) The investment manager is currently considering an opportunity from


Solaris Corporation to improve the company’s profit and performance.

Solaris Corporation, a foreign distributor had approached the company


and offered Carlo Alley to become a sole-distributor to sell their water
filter system for the domestic and international markets. Solaris had
UBAM3013 MANAGEMENT ACCOUNTING
MAY 2022 Tutorial

requested Carlo Alley to slash the selling price by 15%. With this
opportunity, the sales quantity will increase by 200%. However, due to
the existing machine is unable to fulfill demand from Solaris Corporation,
the company may need to acquire a new machine. This will increase the
company average operating asset to RM684,000. The fixed advertising
costs will decrease by RM5,000 per year and the remaining fixed cost
are expected to increase by 30%.

Consider the opportunity above as an additional investment to the most


recent year data and compute the new ROI and RI.

(iii) Justify whether the opportunity in (ii) is the best for the company.

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