A well-established food manufacturing and distribution company, specializing in Italian food products, currently has an annual turnover in excess of RM15 million. At present, the company has three production and distribution divisions, cach responsible for specific product groupe. The summary information of the pasta division relating to divisional assets and profitability is as follows. I Pasta division This division produces a wide range of both dried and fresh pasta products which it sells to both the supermarket sector and the restaurant trade. Last year the divisional figures were as follows. RM million Investment in non-current assets 1.5 Investment in working capital 1.0 Operating profit 03 The company is keen to ensure that each division operates as an autonomous profit-making unit to ensure efficiency prevails, and motivation and competitiveness are maximized. Managers are given the freedom in managing their divisions. Divisional budget are set at the beginning of each year. These are then monitored on a month by month basis. Divisional managers are rewarded in terms of divisional return on investment The company is currently considering expansion into a new but allied product range. This range consists of cances and canned food: Projected figures for the expansion into sauces and canned foods are as follows RM million additional non-curent a pet required 0.75 Additional increment in working capital 0.33 Bandicated climat xt Times New... IC = = = 9 110 111 112 13 14 | 115 116 117 181-19 1.1.1.2.1.3 1.4 1.5 1.6 117:1:8 and canned foods are as follows. RM million Additional non current assets required 0.75 Additional investment in working capital 0.35 Budgeted additional profit 0.198 The cost of capital of the company is 10%. The manager of the pasta division has produced successful results over the past few years for her division. The division enjoy: good bonuses on the basis of return on investment. The company has traditionally calculated return on investment as operating profit as a percentage of return on all net divisional assets, and bonuses are pned as a percentage on this basis. The board proposes thnt the pasta division will be responsible for the expansion into sauces and canned foods. ACCT2220 June 2020 Page 3 of Required: Calculate the return on investment both before and after the proposed divisional expansion 6 marks) CLOS PLONO ACC772200mm2020 Page 3 of 7 Required: a) Calculate the return on investment both before and after the proposed divisional expansion (6 marks) (CLO3:PLO3:C3) b) Calculate the residual income for the division both before and after the proposed divisional expansion (4 marks) (CLO3-PLO3:03) c) Using retum on investment as a performance measure, determine whether divisional manager will be happy to accept the proposed expansion Explain how your answer would differ if residual income was used as a performance measure instead of retum on investment (7 marks) (CLOS PLO3:05) d) Briefly outline the advantages and disadvantages of return on investment and residual income as divisional performance measures. (8 marks (CLO3:PLO3:02) nal text Times New... 15.9 + BI UA 101 III 13 Hii 11 12 13 14 15 17 18 19 10 11 | 12 13 14 15 16 17 18 19 ACCT2220/June2020 Page 2 of 7 QUESTION 2 (25 MARKS) A well-established food manufacturing and distribution company, specializing in Italian food products, currently has an annual turnover in excess of RM15 million. At present, the company has three production and distribution divisions, each responsible for specific product groups. The summary information of the pasta division relating to divisional assets and profitability is as follows. Pasta division This division produces a wide range of both dried and fresh pasta products which it sells to both the supermarket sector and the restaurant trade. Last year the divisional figures were as follows. RM million Investment in non-current assets 1.5 Investment in working capital LO Operating profits Investment in working capital 1.0 Operating profit 0.5 The company is keen to ensure that each division operates as an autonomous profit-making unit to ensure efficiency prevails, and motivation and competitiveness are maximized. Managers are given the freedom in managing their divisions. Divisional budget are set at the beginning of each year. These are then monitored on a month by month basis. Divisional managers are rewarded in terms of divisional return on investment. The company is currently considering expansion into a new but allied product range. This range consists of sauces and canned foods. Projected figures for the expansion into sauces and canned foods are as follows. RM million Additional non-cucrent assets required 0.75 Additional investment in working capital 0.35 Budgeted additional profit 0.198 The cost of capital of the company is 10%. The manager of the pasta division has produced successful results over the past few years for her division. The division enjoys good bonuses on the basis of return on investment. The company has traditionally calculated return on investment as operating profit as a percentage of return on all net divisional assets, and bonuses are paid as a percentage on this basis. The board proposes that the pasta division will be responsible for the expansion into sauces and canned foods. A well-established food manufacturing and distribution company, specializing in Italian food products, currently has an annual turnover in excess of RM15 million. At present, the company has three production and distribution divisions, cach responsible for specific product groupe. The summary information of the pasta division relating to divisional assets and profitability is as follows. I Pasta division This division produces a wide range of both dried and fresh pasta products which it sells to both the supermarket sector and the restaurant trade. Last year the divisional figures were as follows. RM million Investment in non-current assets 1.5 Investment in working capital 1.0 Operating profit 03 The company is keen to ensure that each division operates as an autonomous profit-making unit to ensure efficiency prevails, and motivation and competitiveness are maximized. Managers are given the freedom in managing their divisions. Divisional budget are set at the beginning of each year. These are then monitored on a month by month basis. Divisional managers are rewarded in terms of divisional return on investment The company is currently considering expansion into a new but allied product range. This range consists of cances and canned food: Projected figures for the expansion into sauces and canned foods are as follows RM million additional non-curent a pet required 0.75 Additional increment in working capital 0.33 Bandicated climat xt Times New... IC = = = 9 110 111 112 13 14 | 115 116 117 181-19 1.1.1.2.1.3 1.4 1.5 1.6 117:1:8 and canned foods are as follows. RM million Additional non current assets required 0.75 Additional investment in working capital 0.35 Budgeted additional profit 0.198 The cost of capital of the company is 10%. The manager of the pasta division has produced successful results over the past few years for her division. The division enjoy: good bonuses on the basis of return on investment. The company has traditionally calculated return on investment as operating profit as a percentage of return on all net divisional assets, and bonuses are pned as a percentage on this basis. The board proposes thnt the pasta division will be responsible for the expansion into sauces and canned foods. ACCT2220 June 2020 Page 3 of Required: Calculate the return on investment both before and after the proposed divisional expansion 6 marks) CLOS PLONO ACC772200mm2020 Page 3 of 7 Required: a) Calculate the return on investment both before and after the proposed divisional expansion (6 marks) (CLO3:PLO3:C3) b) Calculate the residual income for the division both before and after the proposed divisional expansion (4 marks) (CLO3-PLO3:03) c) Using retum on investment as a performance measure, determine whether divisional manager will be happy to accept the proposed expansion Explain how your answer would differ if residual income was used as a performance measure instead of retum on investment (7 marks) (CLOS PLO3:05) d) Briefly outline the advantages and disadvantages of return on investment and residual income as divisional performance measures. (8 marks (CLO3:PLO3:02) nal text Times New... 15.9 + BI UA 101 III 13 Hii 11 12 13 14 15 17 18 19 10 11 | 12 13 14 15 16 17 18 19 ACCT2220/June2020 Page 2 of 7 QUESTION 2 (25 MARKS) A well-established food manufacturing and distribution company, specializing in Italian food products, currently has an annual turnover in excess of RM15 million. At present, the company has three production and distribution divisions, each responsible for specific product groups. The summary information of the pasta division relating to divisional assets and profitability is as follows. Pasta division This division produces a wide range of both dried and fresh pasta products which it sells to both the supermarket sector and the restaurant trade. Last year the divisional figures were as follows. RM million Investment in non-current assets 1.5 Investment in working capital LO Operating profits Investment in working capital 1.0 Operating profit 0.5 The company is keen to ensure that each division operates as an autonomous profit-making unit to ensure efficiency prevails, and motivation and competitiveness are maximized. Managers are given the freedom in managing their divisions. Divisional budget are set at the beginning of each year. These are then monitored on a month by month basis. Divisional managers are rewarded in terms of divisional return on investment. The company is currently considering expansion into a new but allied product range. This range consists of sauces and canned foods. Projected figures for the expansion into sauces and canned foods are as follows. RM million Additional non-cucrent assets required 0.75 Additional investment in working capital 0.35 Budgeted additional profit 0.198 The cost of capital of the company is 10%. The manager of the pasta division has produced successful results over the past few years for her division. The division enjoys good bonuses on the basis of return on investment. The company has traditionally calculated return on investment as operating profit as a percentage of return on all net divisional assets, and bonuses are paid as a percentage on this basis. The board proposes that the pasta division will be responsible for the expansion into sauces and canned foods