Metal Products Ltd has two divisions: Pressings and Cans. Pressings produces pressed metal work for industrial and engineering work, while Cans produces cans for the paint and oil industries. The following data relate to the year ended 31 December 2021: Profit statement items Pressings Cans N$000 N$000 Sales 66 000 38 850 Gain on sale of plant - 1350 66 000 40 200 Direct materials 38 400 15 300 Direct labour 13 050 11 925 Depreciation 1050 1 650 Divisional overheads 7 950 6 825 Head office costs (allocated) 660 402 61 110 36 102 Statement of financial position items Pressings Cans N$000 N$000 Fixed assets (at cost less accumulated depreciation) 10 500 13 500 Stocks 9 525 2 700 Trade debtors 6 000 3 150 Cash at bank 2 250 - Bank overdraft - 750 Trade creditors 4 500 3 225 Divisional managers (DMs) are given authority to spend up to N$30 000 each on capital items, as long as total spending remains within an amount provided for small projects in the annual budget. Projects that are larger, as well as sales of assets with book values in excess of N$30 000, must be submitted to central management (CM). All day-to-day operations are delegated to DMs, whose performance is monitored with the aid of budgets and reports. The basis for appraising DM performance is currently under review. At present, divisions are treated as investment centres for DM performance appraisal, but there is disagreement as to whether return on capital employed or residual income is the better measure. The cost of capital of Metal Products Ltd is 15% per annum. FACULTY OF COMMERCE, MANAGEMENT AND LAW Page 15 of 16 Required Marks Subtotal Total 2.1 Calculate the two measures (return on capital employed and residual income) which are being considered by Metal Products Ltd for both divisions, and state any assumptions or reservations about the data you have used in your calculations 10 10 2.2 Examine the merits and problems of Metal Products Ltd's two contemplated approaches to DM performance appraisal, and briefly suggest how CM could determine the required level of performance in each case.