Accounting Business Reporting for Decision Making

600 Accounting: Business Reporting for Decision Making

Required
a. Explain how the performance measurement system can affect an entity’s success.
b. For each of the identified factors — customer satisfaction, product quality and product inno-
vation — outline some non-financial performance indicators that could help focus work effort
at the agricultural company.
c. You explain to management that a focus on operational issues relating to customer satisfaction,
product quality and product innovation should help improve profit in the longer term. What other
success factor should be included in the entity’s mission and performance measurement system?
14.42 Divisional performance report  LO 2

Coconut Plantations Pty Ltd is located on the Sunshine Coast in Queensland and manufactures

sustainable coconut-based products for three different markets. The business has grown from a

backyard hobby for the owner, Jo Geter, to quite a large manufacturing concern. The company is

structured into three distinct divisions aligned with each market, as shown.

Soaps Candles Detergents

Sales $950 000 $570 000 $380 000

Contribution margin ratio 60% 50% 55%

Fixed costs $180 000 $160 000 $120 000

Divisional investment $700 000 $250 000 $150 000

Common costs for the year totalled $300 000 and were allocated based on sales.
Required
Prepare a divisional performance report based on the information supplied.
14.43 Du Pont ROI, RI and EVA   LO 3

Global Resources is a division of an international conglomerate. The following information

relates to its performance.

Target profit margin 12%

Target asset turnover 1.34 times

Charge for capital 14%

Weighted    average cost    of   capital 12.40%

Income  tax  rate 35%

Investment $11 300 000

Total assets $14 025 000

Current liabilities $ 410 000

Sales $11 600 000

Variable costs $ 4 480 000

Fixed costs $ 5 230 000

Allocated common and corporate costs $ 818 000

Required

a. Calculate the divisional margin for the year.

b. Calculate the Du Pont ROI, and evaluate the performance of Global Resources in relation to

the expected performance.

c. Calculate the residual income.

d. Calculate the EVA.

e. Why are the residual income and EVA different?

f. Discuss the appropriateness of the use of ROI, RI and EVA as performance measures.