Question
PERFORMANCE MEASUREMENT AND COMPENSATION Theoretical concepts to consider: Six steps of designing an accounting-based performance system Goal congruence Practical questions: Question 1 Mountain Ltd provides
PERFORMANCE MEASUREMENT AND COMPENSATION
Theoretical concepts to consider:
Six steps of designing an accounting-based performance system
Goal congruence
Practical questions:
Question 1
Mountain Ltd provides the following data:
Division A
Division B
Revenue
$1,750,000
$5,500,000
Net profit (Income)
$200,000
$900,000
Investment
$1,500,000
$4,000,000
The company's required rate of return is 12%.
Required:
a)Calculate return on sales [= income / revenue]
b)What does (a) tell us?
c)Calculate investment turnover [= revenue / investment]
d)What does (c) tell us?
e)Calculate return on investment [= income / investment OR (a) x (b)]
f)What does (e) tell us?
g)Calculate Residual income [= income - (required rate of return x investment]
h)What does (g) tell us?
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