Question 4: July 2020R Q1 (Class Activity) The financial results of Dalero Litd for the year ended 31 st December 2018 were as follows: The maximum capacity of the company for the year is 100,000 units. There was no opening or closing inventory for the year. Shortly after the dismal results were released, the Chief Executive Officer (CEO) resigned and the company appointed Jinus Lee as the new CEO. He came on board in January 2019. The terms of his appointment include a base salary of $240,000 per annum plus a 30% annual bonus based on the accounting profits earned for the year (before the bonus payment). Previously, the past CEOs were on a fixed salary contract. The change to incentive-based compensation was made so that the new CEO can turn the company around quickly. Jinus, the new CEO, achieved the following during the financial year ended 31st December 2019: - Increased sales by 15% over the previous year. - Increased total production output from 50,000 units to 90,000 units. During the year 2019, the unit selling price and all costs remained unchanged except for the additional fixed marketing costs of $100,000. There was no acquisition of non-current assets during the year 2019. After the end of the financial year 2019, Jinus, the new CEO proudly presented the financial statements to the Board of Directors and announced that the company is 'back in black'. The directors were happy that he had managed to turn the company around within such a short period of time - just one year and were pleased that their change in the remuneration package had worked. At the end of the meeting, Jinus surprised the Board when he announced that he is leaving the company, as he would like to advance his career in another larger company who had offered a more attractive remuneration package than Dalero. He will leave the company soon after serving the period of notice. Required: (a) Prepare the Statement of Profit or Loss using the Absorption costing model (for financial reporting) for the year ended 31st December 2019. (3 marks) (b) Calculate the bonus payable (if any) and total remuneration of Jinus Lee, the new Chief Executive Officer for the year 2019. (2 marks) (c) Evaluate the performance of the new Chief Executive Officer and explain whether the performance measurement and reward is effective. (10 marks) (d) Compare the fixed salary compensation that Dalero Ltd previously adopted and the new incentive-based compensation for the current CEO and comment on their effect on the performance of Dalero Ltd. (4 marks) (e) If the CEO's bonus payment is revised to 30% of the annual accounting profits over and above the targeted Return on Investment (ROI) of 10% and the fixed base salary remains at $240,000, calculate the revised amount of the new CEO's total remuneration package in 2019. The gross total assets at the end of the previous year 2018 was $3,468,000. There was no change to the total assets in 2019 except for the inventories. Evaluate whether this package is beneficial to the company. (6 marks) (f) Advise the management of Dalero Ltd on the basic requirements for a good performance measurement and reward system for strategic management and propose any two (2) suitable performance measures and two (2) suitable rewards/incentives other than those measures and rewards/incentives already in the earlier questions. (7 marks) Question 4: July 2020R Q1 (Class Activity) The financial results of Dalero Litd for the year ended 31 st December 2018 were as follows: The maximum capacity of the company for the year is 100,000 units. There was no opening or closing inventory for the year. Shortly after the dismal results were released, the Chief Executive Officer (CEO) resigned and the company appointed Jinus Lee as the new CEO. He came on board in January 2019. The terms of his appointment include a base salary of $240,000 per annum plus a 30% annual bonus based on the accounting profits earned for the year (before the bonus payment). Previously, the past CEOs were on a fixed salary contract. The change to incentive-based compensation was made so that the new CEO can turn the company around quickly. Jinus, the new CEO, achieved the following during the financial year ended 31st December 2019: - Increased sales by 15% over the previous year. - Increased total production output from 50,000 units to 90,000 units. During the year 2019, the unit selling price and all costs remained unchanged except for the additional fixed marketing costs of $100,000. There was no acquisition of non-current assets during the year 2019. After the end of the financial year 2019, Jinus, the new CEO proudly presented the financial statements to the Board of Directors and announced that the company is 'back in black'. The directors were happy that he had managed to turn the company around within such a short period of time - just one year and were pleased that their change in the remuneration package had worked. At the end of the meeting, Jinus surprised the Board when he announced that he is leaving the company, as he would like to advance his career in another larger company who had offered a more attractive remuneration package than Dalero. He will leave the company soon after serving the period of notice. Required: (a) Prepare the Statement of Profit or Loss using the Absorption costing model (for financial reporting) for the year ended 31st December 2019. (3 marks) (b) Calculate the bonus payable (if any) and total remuneration of Jinus Lee, the new Chief Executive Officer for the year 2019. (2 marks) (c) Evaluate the performance of the new Chief Executive Officer and explain whether the performance measurement and reward is effective. (10 marks) (d) Compare the fixed salary compensation that Dalero Ltd previously adopted and the new incentive-based compensation for the current CEO and comment on their effect on the performance of Dalero Ltd. (4 marks) (e) If the CEO's bonus payment is revised to 30% of the annual accounting profits over and above the targeted Return on Investment (ROI) of 10% and the fixed base salary remains at $240,000, calculate the revised amount of the new CEO's total remuneration package in 2019. The gross total assets at the end of the previous year 2018 was $3,468,000. There was no change to the total assets in 2019 except for the inventories. Evaluate whether this package is beneficial to the company. (6 marks) (f) Advise the management of Dalero Ltd on the basic requirements for a good performance measurement and reward system for strategic management and propose any two (2) suitable performance measures and two (2) suitable rewards/incentives other than those measures and rewards/incentives already in the earlier questions. (7 marks)