=+20-28 KKK ROI performance measures based on historical cost and current cost OBJECTIVES 3, 6 Maleny Moo

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=+20-28 KKK ROI performance measures based on historical cost and current cost OBJECTIVES 3, 6 Maleny Moo Ltd operates three divisions that process milk products. The historical-cost accounting system reports the following information for 2015:

Chapter 20: Performance measurement, compensation and multinational considerations 787 M20_HORN3377_02_LT_C20.indd 787 2/09/13 4:07 PM Yoghurt Division Milk Division Cheese Division Revenues $2 290 000 $1 150 000 $1 950 000 Operating costs (excluding plant depreciation) 1 950 000 750 000 1 250 000 Plant depreciation 240 000 150 000 340 000 Operating income $100 000 $250 000 $360 000 Current assets $650 000 $250 000 $800 000 Long-term assets—plant 180 000 1 900 000 2 440 000 Total assets $830 000 $2 150 000 $3 240 000 Maleny Moo estimates the useful life of each plant to be 12 years, with no terminal disposal value. The straight-line depreciation method is used. At the end of 2015, the yoghurt plant is 10 years old, the milk plant is three years old and the cheese plant is one year old. An index of construction costs over the 10-year period that Maleny Moo has been operating (2005 year-end = 100) is:

2005 2012 2014 2015 100 125 165 172 Given the high turnover of current assets, management believes that the historical-cost and current-cost measures of current assets are approximately the same.

Required 1 Calculate the ROI ratio (operating profit to total assets) of each division using historical-cost measures. Comment on the results.

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Cost Accounting A Managerial Emphasis

ISBN: 9781442563377

2nd Edition

Authors: Monte Wynder, Madhav V. Rajan, Srikant M. Datar, Charles T. Horngren, William Maguire, Rebecca Tan

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