a) What are the suggested adjustments to the trading profit for each product line? (see TN2 - NEW ADJUSTMENTS)

b) Do you believe these costs should be allocated to each product line for product line performance evaluation (for use in determining bonuses paid to product line managers)? Justify your answer.

Teaching Note (TN) 2: Performance Measures for Each Level Level Performance Measures at each Level 1) Capital turnover (Net Sales / AGCE) 2) Return on Sales (Trading Profit before tax/Net Sales) 3) Return on Capital (Profit After Tax / AGCE) Unilever NV 1) Sales growth 2) After-tax profit margin 3) ATRIC TJ Lipton US Product Managers (Foods & Beverages) OLD MEASURES 1) Unit growth in volume 2) Trading profit (included a deduction for new product development charge) 3) Delivered profit (gross margin) 4) Return on sales NEW ADJUSTMENTS TO TRADING PROFIT 1) Deduct a charge for working capital investments 2) Deduct a charge for surplus CRV depreciation 3) Deduct a charge for fixed asset resources based on CRV 4) Deduct new OI&D charges not previously allocated 5) Reverse new product development charge Teaching Note (TN) 2: Performance Measures for Each Level Level Performance Measures at each Level 1) Capital turnover (Net Sales / AGCE) 2) Return on Sales (Trading Profit before tax/Net Sales) 3) Return on Capital (Profit After Tax / AGCE) Unilever NV 1) Sales growth 2) After-tax profit margin 3) ATRIC TJ Lipton US Product Managers (Foods & Beverages) OLD MEASURES 1) Unit growth in volume 2) Trading profit (included a deduction for new product development charge) 3) Delivered profit (gross margin) 4) Return on sales NEW ADJUSTMENTS TO TRADING PROFIT 1) Deduct a charge for working capital investments 2) Deduct a charge for surplus CRV depreciation 3) Deduct a charge for fixed asset resources based on CRV 4) Deduct new OI&D charges not previously allocated 5) Reverse new product development charge