Question
Berjaya Berhad is a decentralized wholesaler with two autonomous divisions that operate in similar markets that are the Properties and Food Services division.Each division has
Berjaya Berhad is a decentralized wholesaler with two autonomous divisions that operate in similar markets that are the Properties and Food Services division.Each division has a required rate of return of 15% and is being monitored based on its return on investment (ROI), with investment defined as total net operating assets employed.The planned operating results for the year 2019 are as follows:
Properties Food Services
Division Invested $6,000,000 $900,000
Capital Operating income $1,000,000 $200,000
Required:
a. Elaborate on how the manager of Properties division could improve its division's ROI.
b. Based on the ROI and residual income (RI), advice Berjaya Berhad on which division that shows a better performance for the year 2019.
c. The company is planning to have an expansion in the year 2020, which will require each division to increase its investments by $2,500,000, resulting an increase of its income by $450,000. Advise Berjaya Berhad on which division that shows a better performance for the year 2020 by looking at the new ROI and RI.
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