Question 2 Business Structure and Divisional performance evaluation Divisional Performance Evaluation A-Grade Tutoring Services offers educational tuition to a wide range of students. The business employs five casual tutors, and operates from a rented office in the outer suburbs. The investment required for each division reflects the room set-up and learning resources needed for the age group. Common costs include a receptionist that takes bookings, internet fees and shared advertising. Tutoring clients can be grouped into three main categories: Juniors Intermediate Seniors Totals (a) Year level 1-4 Year level 5-8 Year level 9-124 Revenue 32,000 e 74,000 103,000 209,000 Divisional Costs (25,000) (48,000) (80,000) (153,000) Divisional 7,000 e 26,000 23,000 56,000 Contribution Common Costs (12,000) (12,000) (12,000) 36,000 Profit ($ 5,000) $ 14,000 $ 11,000 $ 20,000 Investmente $ 4,000 $7,000 $ 13,000 $ 24,000 e e e T. e Role e e Rie e After analysing the above information, the owner of A-Grade Tutoring Services is considering scaling back operations and providing service to only the Intermediate and Senior client groups as they seem more profitable. If this occurs, common costs would remain, while divisional costs for the Junior clients would be eliminated. Required: (a) Assume A-Grade Tutoring chooses to no longer provide tutoring to the Junior client category. Calculate the effect on overall company profitability in the extra column above. (b) Comment on the allocation of common costs, and suggest three other allocations that may be appropriate. Choose one (1) of the alternative allocations and re-calculate the data in the table below. (c) Calculate ROI and RI for each client category based on initial allocations of common costs, and again based on your suggested allocation. Assume a required rate of return of 50% and assume the Junior client category is still operational (d) Provide an analysis of your findings, including a recommendation on whether the Junior client category should be discontinued