This question is on Management Accounting and Evaluation. QUESTION 2 The informa

ID: 2523089 • Letter: T

Question

This question is on Management Accounting and Evaluation.

QUESTION 2 The information regarding status and operations for Division B of Sysmade Bhd as follows: Division Divisional investment Divisional profit Divisional sales 750.000 275,000 $1.800,000 Each division is required to earn a minimum return of 20% on its investment in operating assets. Net opern ting ThcoMe average operating assets a. Compute the ROI for Division B. (5 marks) b. Division B could increase its profit by $10,000 by increasing its investment by $40,000. Compute its total residual income. (5 marks) QUESTION 3 Evaluation is part of performance measurement. Briefly discuss on purpose of evaluation.(Based on talk by Sir Ricarddo, Unicef)

Explanation / Answer

Question -2;

(a). ROI for division B = 36.67%

Explanation;

Formula of ROI is as follow;

ROI = (Divisional profits / Divisional investment) * 100

Divisional profits = $275000

Divisional investment = $750000

Thus, ROI will be ($275000 / $750000) * 100 = 36.67%

(b). Total residual income = $127000

Explanation;

Total investment ($750000 + $40000)

$790000

Minimum return

20%

Minimum required divisional profits ($790000 * 0.2)

$158000

Actual divisional profits ($275000 + $10000)

$285000

Residual income ($285000 - $158000)

$127000

Question - 3;

Evaluation is very important process for knowing about the actual performance in compare to budgeted & standards. So we can say that evaluation helps management in knowing actual positive or negative variances so that proper corrective actions can be taken in real time.

In other words, we can say that evaluation is done for knowing direction of actual performance in compare to standards, without proper evaluation managemnet can not know about the actual variances in the real performance of overall business’s operations hence evaluation helps in knowing actual perormance.