Gwembe safaris limited has been in operation in the last twenty years offering a wide range of hospitality services to both local and international tourists. The hospitality services ranged from cozy restaurants and hostel accommodation to safaris game and scenic viewing. Gwembes winning theme has been an efficient service offering at a low price.

To date, Gwembe has evaluated its performance using quarterly financial measures. These financial measures seem to have worked well. However, in recent times there have been an emergence of new hospitality and safari businesses entering the market, and offering basic hospitality services at very affordable rates. These have undoubtedly offered formidable competition to Gwembe resulting in the drop in numbers of its customers.

You have just attended a workshop wherein the Balanced scorecard was presented as a better alternative way to measure performance.

Required:

Explain the Balanced scorecard and how it could be used by Gwembe ltd to assess its performance.(10marks)

(b)

Chinsali Division, a subsidiary of Mungwi Group Plc has the following budgeted results:

	K000
Capital Employed	6,400
Operating Profit	1,600
Mungwi Group uses the Return on	(ROI) and the Residual Income (RI) to evaluate

the performance of division managers.

The non-current assets are valued at net book value at year end while net current assets are valued at the average for the year. Depreciation is calculated on straight line basis.

Mungwi Group expects all new projects to earn a minimum 18% discounted cashflow return over four years.

In addition to the budgeted results, Chinsali division is considering investment in the following three new independent projects:

Project 1

Investment outlay of K1,200,000 in a processing plant

Benefit - the plant will reduce annual revenue costs by K400,000

The plant would be purchased at the beginning of next year, with a useful life of four

years and no scrap value.

Project 2

Investment outlay of K32,000 in computerized inventory control system at start of next year. Plus an additional member of staff to be employed specifically to manage the system at an annual salary of K36,000.

Benefit of new system reduction in inventory levels by an average of K180,000 over the year. This project investment to be regarded as a revenue expense lasting only one year. The extra cash to be remitted to Mungwi group head office. Project 3

Head office be allowed to assist chinsali handle its accounts receivable by injecting some extra cash. This assistance will enable chinsali increase accounts receivable by an average of K140,000 over a year. This will result in increased sales generating an additional annual contribution of a K100,000. Ignore inflation and taxation

Required:

1. Calculate the existing return on investment (ROI) and residual income (RI) for Chinsali Division without the proposed new investment projects

2. Calculate Chinsali divisions return on investment and residual income for the next year for each of the three new independent projects.

3. Recommend the new project(s) that are likely to encourage goal congruence between Mungwi group plc and chinsali division. Comment on the residual income decision rules.

Discount factors (18%)

Year 0	Year 1	Year 2	Year 3	Year4	Year5
1	0.847	1.566	2.174	2.690	3.127