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Faculty Commerce, Management and Law School School of Accounting Subject Management Accounting 1B Subject code CAAM3692 - Assignment Due Date 11th October 2021 @ 16H30 Marks 40 Please use your intuitions to deal with any error(s) or ambiguities in Instructions this Assignment, any assumptions made should be clearly stated. The following financial statements apply to Vita division, one of three investment centers operated by Nexis Corporation. Nexis Corporation has a desired rate of return of 15%. Nexis Corporation headquarters has N$80 000 of additional operating assets to assign to the investment centers. Vita Division Income Statement for the year ended 30 August 2021 N$ 78 695 (50 810) 27 885 Sales Revenue Cost Of Goods Sold Gross Margin Operating Expenses Selling Expenses Depreciation Expenses Operating Income Non-Operating Expense Loss on sale of Land Net Income (1 200) (1 125) 25 560 (3 200) 22 360 Below is a Balance Sheet of Vita Division as at 31 August 2021 Assets Cash Account Receivables Merchandise Inventory Equipment Non-Operating Assets Total Assets N$ 8 089 22 870 33 460 77 581 8 250 150 250 5 000 58 000 Liabilities Account payable Notes Payable Stock Holder equity Common Stock Retained Earnings Total Liability & Stock Holder Equity 55 000 32 250 150 250 2 REQUIRED: MARKS Should Nexis Corporation use operating income or net income to determine 1.1 2 its Return On Investment rate for the Vita investment center? Explain Should Nexis Corporation use operating assets or total assets to determine 1.2 2 Return On Investment for the Vita investment center? Explain. 1.3 Calculate the ROI for Vita Division. 3 The manager of the Vita Division has an opportunity to invest the funds at an ROI of 17 percent. The other two divisions have investment opportunities that 1.4 yield only 16 percent. The manager of Vita Division rejects the additional 4 funding. Why would the manager of Vita Division reject the funds under these circumstances? Calculate the residual income from the investment opportunity available to 1.5 Vita Division and explain how residual income could be used to encourage 4 the manager to accept the additional funds Write a Memo to the Manager of Nexis Corporation and explain to him about the following methods of measuring divisional performance. 1. Return on Investment 2. Residual Income 1.6 3. Sales Growth Measure. 25 4. In your Memo, clearly indicate the objective of measuring divisional performance, talk about the long term and short term performance measure using each method, the advantage and disadvantage of measuring divisional performance using each method, in your 2 conclusion kindly advise the Manager the best method and explain why you deem it fit. Faculty Commerce, Management and Law School School of Accounting Subject Management Accounting 1B Subject code CAAM3692 - Assignment Due Date 11th October 2021 @ 16H30 Marks 40 Please use your intuitions to deal with any error(s) or ambiguities in Instructions this Assignment, any assumptions made should be clearly stated. The following financial statements apply to Vita division, one of three investment centers operated by Nexis Corporation. Nexis Corporation has a desired rate of return of 15%. Nexis Corporation headquarters has N$80 000 of additional operating assets to assign to the investment centers. Vita Division Income Statement for the year ended 30 August 2021 N$ 78 695 (50 810) 27 885 Sales Revenue Cost Of Goods Sold Gross Margin Operating Expenses Selling Expenses Depreciation Expenses Operating Income Non-Operating Expense Loss on sale of Land Net Income (1 200) (1 125) 25 560 (3 200) 22 360 Below is a Balance Sheet of Vita Division as at 31 August 2021 Assets Cash Account Receivables Merchandise Inventory Equipment Non-Operating Assets Total Assets N$ 8 089 22 870 33 460 77 581 8 250 150 250 5 000 58 000 Liabilities Account payable Notes Payable Stock Holder equity Common Stock Retained Earnings Total Liability & Stock Holder Equity 55 000 32 250 150 250 2 REQUIRED: MARKS Should Nexis Corporation use operating income or net income to determine 1.1 2 its Return On Investment rate for the Vita investment center? Explain Should Nexis Corporation use operating assets or total assets to determine 1.2 2 Return On Investment for the Vita investment center? Explain. 1.3 Calculate the ROI for Vita Division. 3 The manager of the Vita Division has an opportunity to invest the funds at an ROI of 17 percent. The other two divisions have investment opportunities that 1.4 yield only 16 percent. The manager of Vita Division rejects the additional 4 funding. Why would the manager of Vita Division reject the funds under these circumstances? Calculate the residual income from the investment opportunity available to 1.5 Vita Division and explain how residual income could be used to encourage 4 the manager to accept the additional funds Write a Memo to the Manager of Nexis Corporation and explain to him about the following methods of measuring divisional performance. 1. Return on Investment 2. Residual Income 1.6 3. Sales Growth Measure. 25 4. In your Memo, clearly indicate the objective of measuring divisional performance, talk about the long term and short term performance measure using each method, the advantage and disadvantage of measuring divisional performance using each method, in your 2 conclusion kindly advise the Manager the best method and explain why you deem it fit