The Sejahtera Group, which is privately owned, operates three centres in Selangor. Each centre offers dietary plans and fitness programmes to clients under the supervision of dieticians and fitness trainers. Residential accommodation is also available at each centre. The centres are located in Taman Melawati, Taman Setiawangsa and Taman Seri Ukay. The following is a summary of Sejahtera Group financial data for the year ended 31 December 2019. Revenue: Fees received Variable costs Contribution Fixed costs Operating profit Interest costs on long term debt at 10% Profit before tax Income tax expense Profit for the year Average book values for 2019: Assets: Non-current assets Current assets Total assets Taman Melawati Setiawangsa RM000 RM000 Taman Taman Seri Ukay Total RM000 RM000 1800 2100 4500 8400 (468) (567) 1332 1533 (1395) 3105 (2430) 5970 (936) (1092) (2402) (4430) 396 441 703 1540 (180) 1360 (408) 952 1000 2500 3300 6800 800 900 1000 2700 1800 3400 4300 9500 Equity and liabilities: Share capital Retained earnings Total equity 2500 4400 Non-current liabilities 6900 Long-term borrowings 1800 Total non-current liabilities 1800 Current liabilities 80 240 480 800 Total current liabilities 80 240 480 800 Total liabilities 2600 Total equity and liabilities 9500 Aditional information: Sejahtera defines Return on Investment (ROI) as operating profit divided by, total assets less current liabilities. Sejahtera defines Residual Income (RI) for each centre as operating profit minus a required rate of return of 12% of the total assets of each centre. At present, Sejahtera does not allocate the long term borrowings of the group to the three separate centres. Each centre faces similar risks. Tax is payable at a rate of 30%. The market value of the equity capital of Sejahtera is RM9 million. The cost of equity of Sejahtera is 15%. The Weighted Average Cost of Capital (WACC) is 13.67%. (Hint: EVA is the difference between after tax operating profit and cost of capital charged on, total assets less current liabilities) The market value of the long term borrowings of Sejahtera is equal to the book value. The directors are concerned about the ROI generated by the Taman Setiawangsa centre and they are considering using sensitivity analysis in order to show how a target of 20% might be achieved. Required: (a) The directors of Sejahtera have asked you as a management accountant to prepare a simple report providing them with explanations as to the following; (i) (ii) (iii) Which of the three center is the most successful"? (Hint: Comment on Return on Investment (ROI), Residual Income (RI) and Economic Value Added (EVA) being used as measures of financial performance of the centres. Then, provide the calculation and decide which centre is most successful). The percentage change in revenue, total costs and net assets during the year ended 31 December 2019 that would have been required in order to have achieved a target of ROI of 20% by the Taman Setiawangsa Centre. Your explanation should consider each of these three variables in isolation. State any assumptions that you make. The marketing director stated at a recent board meeting that 'The group's success depends on the quality of service provided to our clients. In my opinion we need only to concern ourselves with the number of complaints received from clients during each period as this is the most important performance measure for our business. The number of complaints received from clients is a perfect performance measure. As long as the number of complaint received from client is not increasing from period to period, then we can be confident about our future prospects'. Do you agree with the statement of the Marketing Director? Provide a brief explanation. (b) Another similar company, i.e. Sihat Fitness Co, which is well established in Selangor, operates nine centres. Each of its centres is similar in size to those of Sejahtera. The company also provides dietary plans and fitness programmes to its clients. The directors of Sejahtera have decided that they wish to benchmark the performance of Sejahtera with that of Sihat Fitness Company. Discuss four problems that the directors of HFG might experience in their wish to benchmark the performance of HFG with the performance of SFC, and recommend how such problems might be successfully addressed.