400 40 200 10 j70 Divisions Particulars B 1. Sales revenue 400 2,000 2. Less expenses 360 200 1.800 3. Segment profit contribution 200 4. Segment assets 200 800 4,000 5. Return on sales [(3) - (1) (per cent) 10 50 6. Asset tumover rate (1) + (4)] (times) 2 0.5 0.5 7. Segment rate of return (per cent) 20 25 5 In absolute terms, segment profit contributions are similar 2,00,000) for divisions B and C. However, in relative terms, B's performance is far better than that of division C, the respective figures for return on sales being 50 and 10 per cents. Segment rate of return of division B is also much higher (25 per cent) than that of C 65 per cent). Although A and C both have 10 per cent rate of return on sales, A eamed a 20 per cent return on investment compared to Cs 5 per cent because asset turnover rate of A is 2 whereas that of C is only Based on their segment rate of return, the three divisions would be ranked B (1), A (2) and (3). P. 21.4 A.N. Vinod, the chief accounts officer of XYZ Ltd, has set a number of transfer prices to be used by service departments within the firm, all of which used to be cost centres. One is for typing services. The charge is 100 per hour which is based on total budgeted hours of available service and total budgeted costs for the typing service pool. The manager of one of the operating departments, a profit centre, has obtained a price of 70 per hour of typists' time from an outside agency. The task will take about 100 hours. The manager informs A.N. Vinod and B.C. Mehta, the manager of the typing service cost centre, of the outside price. In turn, he was informed that he could avail of the outside facility if he so desired, but the price set internally would not be lowered from the existing rate of 100 per hour. Comment on the position taken by the managers. Budgeted costs for a pool are about 75 per cent fixed. Make your recommendations 0.5