SECTION B: ANSWER ANY THREE (3) QUESTIONS Question 2 (25 marks) Stevenson Ltd, a garment retail company has two divisions, Division X and Division Y. Both divisions operate separately as an investment centre. The monthly operating statements of the divisions are used as a basis for performance measurement. Delvib The company's target return on investment (ROI) is 25% per annum and it has been the practice at both divisions to calculate ROI using controllable profit only. Following top management's decision in the previous month, each division is now required to deduct a share of head office costs before calculating the 'net profit', which is then used to calculate return on investment (ROI) but the company's target ROI has remain unchanged. Divisions X and Y have maintained ROIs of 27 % per annum and 27.5% per annum respectively over the last six months and bonuses were awarded to their employees. The budgeted operating statement for the month of April 2015 is shown below: Sales revenue Less variable costs Contribution Less controllable fixed costs Controllable profit Less apportionment of head office costs Net profit Division X Rs'000 2,400 (1,050) 1,350 (290) 1,060 (315) 745 Division Y Rs'000 2,750 (1,300) 1,450 (490) 960 (310) 650 Divisional net assets of X and Y are Rs41.5million and Rs39.8million respectively and Stevenson Ltd has a cost of capital of 11%. Required (a) Using both the old method and the new method, calculate the expected annualised Return on Investment based on the above budgeted operating statements, for each of the divisions and explain whether employees of both lo Page 2 of 12