4 (20 MARKS) Megah Berhad is a decentralized wholesaler with two autonomous divisions that operate in similar markets that are Division Utara and Division Selatan. Each divisions is being monitored based on its Return on Investment (ROD), with investment defined as total net operating assets employed. The rewards and bonuses are given to the divisional managers based on ROI. At the end of the month, both divisions are required to prepare the operating statement to be submitted to Megah Berhad. The operating statements for these two divisions for the month of December 2018 are as shown below: Operating Statements for December 2018 Division Utara Division Selatan Sales RM900,000 RM555,000 Variable expenses RM345,000 RM312,000 Contribution margin RM555,000 RM243,000 Less: Controllable fixed expenses (including depreciation on assets) RM95,000 RM42,000 Operating income RM460,000 RM201,000 Less: apportioned Central costs RM338,000 RM180,000 Net income before tax RM122,000 RM21,000 Total Divisional Net assets RM9,760,000 RM1.260,000 The targeted return on capital for Megah Berhad for 2018 is 12 percent per annum. However, the company believe that its cost of capital is likely to rise and is considering an increasing target return on capital in the next future years. Required: a. Calculate the annual Return on Investment (ROD) for both Division Utara and Division Selatan for the year 2018. (4 marks) b. Evaluate the relative performance of both Division Utara and Division Selatan for the year 2018 using the ROI and other relevant information given above. (5 marks) C. Suppose that the minimum required rate of return on operating assets of Megah Berhad is 12 percent and the performance is now evaluated based on Residual Income (RD). i. Calculate the annual RI for both Division Utara and Division Selatan for the year 2018. (4 marks) ii. Evaluate the relative performance of both Division Utara and Division Selatan for the year 2018 using the RI and other relevant information given above. (3 marks) d. Briefly discuss the strengths and weaknesses of ROI and RI as methods of assessing the performance of divisions. (4 marks)QUESTION 1 (20 MARKS) Setia Berhad is a large manufacturing company that has two divisions and has been practicing decentralization for quite some time now. The managers of both divisions are evaluated based on their divisional profits. Setia specializes in producing cabinets and television for domestic market. There are two divisions in this company that are evaluated as profit centers that are the Cabinet Division and TV Division. Cabinet Division manufactures cabinets that can be sold either to TV Division or to outside customers. The cabinet of this type is not available from any other sources. The Cabinet Division manufactures cabinet for television sets, which it sells externally to outside manufacturers of TV sets and also partly sold internally to TV Division. The Cabinet Division charges RM140 per cabinet for all of its sales. The standard cost per unit of cabinet is given as below: RM Variable cost 70 Fixed cost (based on 10,000 units/year) 30 Total cost 100 On the other hand, the TV Division produces and sells a local TV set under its own brand name of CuteTV for the domestic market. Details information about TV Division are as below: RM RM Selling price per CuteTV set 480 Variable cost per CuteTV set: Cost of the cabinet per unit 140 Variable cost of electronic parts 210 350 Contribution margin 130 Fixed costs per CuteTV set (based on 3,000 set/year) 80 Net profit per Cute TV set 50 In the month of June 2019, the TV Division received a special order from an overseas customer for 1,000 CuteTV sets at a very special price of RM340 per set. In view of this, the manager of TV Division requested Cabinet Division to reduce further the transfer price for the TV cabinets. Required: a. List the FIVE (5) motivation for decentralization. (5 marks) b. Explain the meaning and the main objective of transfer price. (4 marks) C. Refer to the original data. It is assumed that both the Cabinet Division and TV Division have idle capacity in its production. Evaluate the special order decision to sell 1,000 sets CuteTV at a special price of RM340 in the perspective of Setia Berhad. Decide the best transfer price under this situation. Show relevant computations to support your answer. (5 marks) d. It is now assumed that the Cabinet Division has no idle capacity in its production. Evaluate the special order decision to sell 1,000 sets CuteTV at a special price of RM340 in the perspective of Setia Berhad. Decide the best transfer price under this situation. Show relevant computations to support your answer. (6 marks)QUESTION 3 Gempak Division manufactures electronic component that can be sold either to Division B] of the same company or to outside customers. During the year 2018. 20,000 units of electronic component Were produced, which 16,000 units Were sold to outside customers and another 4,000 units were transferred and sold to Division B]. The electronic component was used in an electric instrument manufactured by Division B]. where one instrument requires one electronic component. The electronic component of this type is not available from any other sources. Both the selling price and the transfer price per electronic component is RM125 and its variable cost per electronic component is RMQD. Division B] incurred additional RMIUD variable cost per instrument and then sold the instruments for the price of RMSDO each. Required: h. Briey explain the meaning of the term decentralization. (3 marks) c. Briey explain the FIVE (5) benefits from implementing the decentralization system. (5 marks) c. Prepare the income statements for Gempak Division, Division B] and the company as a whole. (.7 marks) (1. Assumed that the full capacity of Gempak Division is 20.000 electronic component per more. In the next year 2019. Division B] wants to increase its order to 5,000 units of electronic component. Evaluate the decision of Gempak Division to sell the extra 1.000 units electronic component to Division B] from the standpoint of the company as a whole