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Sunilever Plc. owns two subsidiaries from which we obtained the information reported in the table below. Sunilever Plc. designates both subsidiaries as investment centres. Item

Sunilever Plc. owns two subsidiaries from which we obtained the information reported in the table below. Sunilever Plc. designates both subsidiaries as investment centres.

ItemMinimalesse Plc.Largesse Plc.
Total Assets$10,000$100,000
Profit for the year 2012$1,500$11,000
Cost of Capital10%10%

Required:

Prepare a report for Sunilever’s management team addressing the following questions:

a) Firms often define responsibility centres. Discuss responsibility accounting and mention the three main types of responsibility centres. Discuss their main features. Your answer should elaborate on aspects of control related to responsibility centres, and it should also discuss the role of responsibility accounting in the distribution of knowledge throughout an organisation.

b) i.) Determine Return on Investment (ROI) and Residual Income for both Minimalesse Plc. and Largesse Plc. Show your calculations.

ii.) Using the information from the Table above discuss the advantages and disadvantages of using Return on Investment (ROI) for the evaluation of the performance of investment centres. Based on your knowledge on responsibility accounting explain which measure (ROI or RI) would you prefer?

c) During the course the concept of the so called “three-legged stool” was discussed. Discuss the concept of the three-legged stool. Your answer should include a discussion of each of the three legs and the relation of the three-legged stool to control.

d) How does responsibility accounting relate to the controllability principle?

All information is given above

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