Page 105 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes 23. P company plastics division had a return on investment on gross assets of 15 percent for
the year. The divisions return on investment on net assets was 20 percent, and on net assets
employed ROI was 24 percent. The divisions net income for the year was ` 4, 50,000 and
residual income was ` 85,000. The only contra-assets accounts the division has are
accumulated depreciation accounts.
Required Compute:
(a) The target income used in computing residual income
(b) The company’s gross assets

(c) The company’s total amount of accumulated depreciation
(d) The amount of assets not employed in the business
24. G Auto Equipment company is organized into three divisions operated as investment
centers. Date for 3 years for the shock – Absorber division are as follows:
Year 3 Year 2 Year 1
Sales 12,10,000 11,00,000 10,00,000
Cost of goods sold 7,00,000 6,00,000 5,00,000
Operating expenses 3,00,000 2,50,000 2,00,000
Current Assets 1,50,000 1,20,000 1,00,000
Fixed Assets 20,00,000 20,00,000 20,00,000
Accumulated depreciation 14,00,000 11,00,000 8,00,000

Required:
(a) Compute net income for each year
(b) Compute ROI for each year using total gross assets

(c) Compute ROI for each year using total net assets
(d) What is the trend to the divisions performance.

Answers: Self Assessment

1. (b) 2. (b)
3. (c) 4. (c)
5. (d) 6. (b)

7. (c) 8. (d)
9. (a) 10. (a)
11. (c) 12. (a)

13. (d) 14. (b)
15. (a)

4.14 Further Readings

Books Anthony, Robert N and Govindrajan, Vijay, "Management Control System", Tata
McGraw Hill.

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