past year exam

A. The income statement for Division A is as follows: Division A Income statement for the year ended 31 December 2018 Sales RM120,000 (-) Cost of goods sold RM79,000 Gross income RM41,000 (-) Selling and administrative expenses RM28,700 Operating income RM12,300 (-) Tax RM3,690 Net income RM8,610 Division A is an investment centre that uses return on investment (ROI) for its performance measure. Management bonuses are also based on ROI. All investments are expected to earn a minimum return of 15%. At the end of 2018, the division's total productive assets is RM63 million, which is a 5% increase over the beginning balance. The total cost of capital is 10%. Division A has an investment opportunity of RM60,000 that will generate additional sales of RM16,000. This investment will incur additional variable cost of 6% on sales and RM600 of fixed cost. By accepting this investment, Division A will increase current liabilities by RM4,000. REQUIRED: (a) Calculate ROI for Division A for the following:[i] Without new investment [3 Marks} (ii) With new investment [2 Marks} {b} Determine whether Division A will accept the new investment if residual income (RI) is used as performance measurement. Show all workings. (2 Marks} {c} Determine whether Division A will accept the new investment if economic value added (EVA) is used as performance measurement. Shows all workings. [2 Marks} {d} Discuss UNI: [1} advantage of using R] as compared to RD] in evaluation of investment centre. [2 Marks} B. Syarikat Aman Damai Sdn Bhd (ADSB) produces electric components. ADSB has two divisions, Division X and Division Y. Twenty percent (20%) of product produced by Division X are sold to Division Y and the remainder are sold to outside market. ADSB policy requires the divisions to use variable cost as transfer price. Currently, Division X operates at maximum capacity of 100,000 units and sells to both Division Y and outside as follows: Division Y Outside market Sales RM450,000 RM4,000,000 (-) Variable costs RM450,000 RM1,800,000 Contribution margin RMO RM2,200,000 Division X has an opportunity to increase the total sales for outside market by 20,000 units provided that the additional sales is at RM75 selling price. Division Y, on the other hand, can alternatively purchase its requirements from outside supplier at a price of RM85 per unit. REQUIRED: (a) Calculate the impact on Division X's contribution margin if it accepts the new opportunity. (3 Marks) (b) Calculate the impact on contribution margin for ADSB if Division X accepts the new opportunity. (2 Marks) (c) Discuss TWO (2) advantages and TWO (2) disadvantages of transfer at market price as compared to cost price. (4 Marks)