Relative performance evaluation Absolutely! Company Ltd manufactures its products near Melbourne, Australia. The company’s distribution and sales operations are decentralised by its three independent product groups

(prepared foods, lighting and auto parts) and by two geographical regions (Australia-New Zealand, South Asia). A regional executive vice-president manages each geographical region.

Each product group within a region has a product vice-president who reports to the regional executive. Because of free trade agreements, Absolutely! considers a product group in both regions as serving the same market, although prices might vary across regions. Fifty% of the annual evaluations of managers of the company sub-units are based on the sub-unit operating income before tax. Regional executives are evaluated on their region’s total operating income before tax. Consider the following information about budgeted and actual outcomes.

Required:
1. Prepare an analysis similar to Figure 12.1 for operating income before tax for each product group and region.
2. According to your analysis, rank the managers by their operating income performance, and explain whether the results are controllable by managers and informative about managers’ performance.

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Budget and actual data A) Annual budget Australia-New Zealand South Asia Prepared Lighting Auto parts Prepared Lighting Auto foods foods parts 20 100 30 18 90 25 Product contribution margin per unit, $AUD Expected market size, 100 000 10.000 30 000 100 000 10 000 30 000 units per year Budgeted sales units 2 000 1 000 300 1 000 1 000 300 per year Budgeted fixed costs 8 000 5 000 11 000 7 000 4 000 8 000 per year, $AUD