BKAM3023 MANAGEMENT ACCOUNTING II

Topic: Standard Cost and Variance Analysis

QUESTION 3 (20 MARKS: 36 MINUTES) A. The following data related to the Alpha division of Beka Bhd: RM Division contribution margin 500,000 Prot margin controllable by the division manager 200,000 Profit margin traceable to the division 180,000 Average asset investment 600,000 Management bonuses are based on Return On Investment (ROI) and the company uses responsibility accounting concepts when evaluating performance. Alpha division manager is contemplating the following THREE (3) investments. He can invest up to RM300,000. Investment 1 Investment 2 Investment 3 RM RM RM Cost 160,000 200,000 300,000 Expected income 40,000 34,000 84,000 Beka Berhad has a cost of capital of 20 percent. REQUIRED: (3) Calculate ROI for the THREE (3) investments. (3 Marks) (b) Calculate the division manager's current ROI. (1 Mark) (c) Which of the three investments would be selected if the manager's focus is on divisional performance. (2 Marks) (d) Calculate the residual income of Investment 3 if Beka Bhd required a cost of capital of 20%. Justify your answer from the division perspective. (2 Marks) (e) Does the company's bonus plan encourage the most effective investment practice for Beka Bhd? Suggest how the plan can be improved