Management accounting Q2
(B) Forest Vacation House was a small place serving hikers from nearby towns. Forest Vacation House was recently acquired by Best Lid. The new owner has plans to upgrade the place. As part of this plan, the new owner would like to make major improvements in the Delight Cafe, the house's on-the-hill cafeteria. The menu at the cafe is very limited - hamburgers, hot dogs, tuna fish sandwiches, pizzas french fries, and packaged snacks. With little competition, the previous owner of the house had felt no urgency to upgrade the food service at the cafe. If hikers want lunch on the mountain, the only alternative to the Delight Cafe is to bring their own meal. As part of the deal when acquiring Forest Vacation House, Best Lid. agreed to retain all the current employees of the house. The manager of the cafe, while hardworking and enthusiastic, has very little experience in the restaurant business. The manager is responsible for selecting the menu, recruiting and training employees, and overseeing daily operations. The kitchen staff prepare food and wash dishes. The dining room staff take orders, serve as cashiers, and clean the dining room area. Shortly after taking over Forest Vacation House, management of Best Lid. held a day-long meeting with all the employees of the Delight Cafe to discuss the future of the house and the new management's plans for the cafe. At the end of this meeting, management and employees of the cafe tried to create a balanced scorecard for the cafe that would help guide operations for the coming hiking season. The following performance measures were included on the balanced scorecard for the cafe: (1) Average time to take an order (2) Percentage of dining room staff completing hospitality course (3) Dining area cleanliness (4) Number of menu items Annual sales Annual return on investment (7) Number of customers (8) Percentage of kitchen staff completing cooking course (9) Customer satisfaction with menu choices (10) Average time to prepare an order (11) Customer satisfaction with service Required: Using the above performance measures, construct a balanced scorecard for the Delight Cafe. Use arrows to show causal links and indicate with a "+" or whether the performance measure should increase or decrease. (9 marks) (Total for Question 2: 20 marks)Question 2 (20 marks) (A) Tommy Ltd. is a regional chain of 'Tai Chi' clubs. The company reported the following results from last year's operations: Sales $1,350,000 Less: Variable expenses 600.000 Contribution margin 750,000 Less: Fixed expenses 277,500 Net operating income 472,500 Average operating assets 900,000 This year, the company has an opportunity to make an investment of $256,250 in operating assets with the following cost and revenue characteristics: Sales $500,000 Contribution margin ratio 55% of sales Fixed expenses $155,500 The company's minimum required rate of return is 25% Required: (a) Compute the company's return on investment (ROD) for last year. (2 marks) (b) Compute the company's residual income for this year's investment opportunity. (2 marks) (c) If the company's chief executive officer will earn a bonus only if his ROI from this year exceeds his ROI from last year, will he pursue the investment opportunity? Why or why not? (Assume that the net operating incomes and average operating assets are similar for both years before the new investment.) (2 marks) (d) Calculate the company's residual incomes for last year and this year (if accept the new investment opportunity) respectively. If the company's chief executive officer will earn a bonus only if his residual income from this year exceeds his residual income from last year, will he pursue the investment opportunity? Why or why not? (3 marks) (e) If you were the shareholder of the company, would you recommend that the company pursue the investment opportunity? Explain (2 marks)
