(20 marks) Metal Products Ltd has two divisions: Pressings and Cans. Pressings produces pressed metal work for industrial and engineering work, while Cans produces cans for the paint and oil industries. The following data relate to the year ended 31 December 2021: Profit statement items Sales Gain on sale of plant Direct materials Direct labour Depreciation Divisional overheads Head office costs (allocated) Statement of financial position items Fixed assets (at cost less accumulated depreciation) Stocks Trade debtors Cash at bank Bank overdraft Trade creditors Required Pressings Cans N$000 66 000 Page 14 of 16 2.1 66 000 2.2 38 400 13 050 1050 7 950 660 61 110 Pressings Cans N$000 10 500 9 525 6 000 2 250 4 500 FACULTY OF COMMERCE, MANAGEMENT AND LAW Calculate the two measures (return on capital employed and residual income) which are being considered by Metal Products Ltd for both divisions, and state any assumptions or reservations about the data you have used in your calculations Examine the merits and problems of Metal Products Ltd's two contemplated approaches to DM performance appraisal, and briefly suggest how CM could determine the required level of performance in each case Total marks Divisional managers (DMS) are given authority to spend up to N$30 000 each on capital items, as long as total spending remains within an amount provided for small projects in the annual budget. Projects that are larger, as well as sales of assets with book values in excess of N$30 000, must be submitted to central management (CM). All day-to-day operations are delegated to DMs, whose performance is monitored with the aid of budgets and reports. The basis for appraising DM performance is currently under review. At present, divisions are treated as investment centres for DM performance appraisal, but there is disagreement as to whether return on capital employed or residual income is the better measure. The cost of capital of Metal Products Ltd is 15% per annum. M N$000 38 850 Sub- total 10 10 1350 40 200 15 300 11 925 1 650 6 825 402 36 102 N$000 13 500 2 700 3 150 20 750 3 225 Total 10 20