CHAPTER 14 Performance measurement 599Coconut Plantations Pty Ltd
Balance sheet as at 31 December 2018Owners’ equity
Share capital
Retained profits200 000
350 360
Total equity 550 360
Total liabilities and equity 854 310Coconut Plantations Pty Ltd
Statement of profit or loss for year ended 31 December 2018Sales
Cost of sales$1 675 000
1025 000
Gross profit
Other incomeWarehousing and distribution
Sales and marketing
Administration77 000
105 000
115 000650 000
1 500297 000
Profit
Interest354 500
18 000
Profit after interest
Tax @ 30%336 500
100 950
Profit after tax $ 235 550The weighted average cost of capital is 15 per cent.
Required
Calculate the EVA.
14.40 Individual performance measurement LO5
You work for a fruit and vegetable manufacturer that has three distinct divisions: juice, canned
and fresh. Rewarding performance has been on the agenda for the last few management meet-
ings, and it has been proposed that the company would benefit from creating an employee reward
system with a profit-sharing component. The proposal is for the company to pool 3 per cent of
the company’s profits each month, to be paid out to employees at the end of the year based on
their existing salary. It was thought this approach would encourage a commitment to the organ-
isation and help strive for better results.
There will be a vote for the current proposal at the next management meeting.
Required
a. Discuss the advantages and disadvantages of the proposal.
b. Outline an alternative reward system.
14.41 Non-financial performance measurement LO6
You have been assigned a consulting job with a medium-sized agricultural company that special-
ises in supplying seedlings to nurseries. The entity is divided into divisions based on geographical
locations. Currently the management of each division is evaluated on its ROI.
Your investigations at the entity reveal its mission is to be ‘the number one provider of quality
plant stock in the southern hemisphere’. You also note that the entity has identified customer
satisfaction, product quality and product innovation as hallmarks of success. However, recently
the company’s profits have been declining.
You notice a positive attitude at the plant propagation laboratories during your field visits, but
at the distribution centres there appears to be some discontent resulting in a lot of lost stock and
customer complaints.