Strategic Management Accounting

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Benedi Division is one of the responsibility centres in Franz Ltd. The company currently measures and rewards the division managers' performances based on the return on investment (ROI). The company expects a minimum return of 10%. The following data of Benedi Division are for the years 20X2 and 20X3 : At the beginning of the next year, 20X4, Benedi Division is considering a new investment proposal on the acquisition of a robotic machine, estimated to cost $2 million. The new robotic machine is estimated to earn additional revenues of $1,400,000 and incur estimated additional operating expenses of $1,150,000 during the year 20X4. Assume all other revenue, costs and investments remain unchanged in 20X4. Required: (a) Identify the type of responsibility centre of Benedi Division and provide reasons to support your classification. (2 marks) (b) Calculate the return on investment (ROI), return on sales (ROS) and investment turnover of Benedi Division for each of the three years: 20X2, 20X3 and 20X4(including the new investment). Do also present the ROI, ROS and investment turnover of the new investment separately. (8 marks) (c) Analyse the performance of Benedi division based on the performance measures calculated in part (b), for the three years 20X2 to 20X4. (10 marks) (d) If ROI is the only performance measure used to measure and reward the managers' performance, will the divisional manager of Benedi Division acquire the new robotic machine in 20X4? Explain. (5 marks) (e) If the performance measure is changed ROI to residual income (RI) to measure and reward the performance of the manager of Benedi Division, calculate the RI for the three years 20X2,20X3 and 20X4 after the new investment and also the RI of the new investment separately. (Round the answer to the nearest thousand) (8 marks) (f) Evaluate the performance of Benedi Division when residual income is used, based on your answers in part (e). (5 marks) (g) Discuss the impact of the adoption of Residual Income as a performance measure on the decision on the additional investments' proposal in 20X4. (12 marks)