Page 91 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes J K L
-
Revised ROI 90( )7.5 55 - 7.5 50 - 7.5
= 18.9% = 9.0% = 5.9%
-
600( )75 600 - 75 800 - 75
Impact on budget Increases Reduces Reduces
Revised EVA 45 – 7.5 + 7.5 = 45 5 – 7.5 + 7.5 = 5 – 15 – 5 + 2.5 = – 15
Impact on budget No change No change No change

Problem 3: Following is the year-end trial balance of Hofna Company. The company closes its
books on December 31. There were no stock transactions during the year;

Debit Credit
Current Assets 2,00,000
Fixed Assets 9,00,000
Accumulated depreciation 3,50,000
Land held for investment 3,00,000
Current Liabilities 50,000
Long-term liabilities 2,10,000
Capital stock 2,40,000
Retained earnings 4,00,000
Dividends 50,000
Sales 7,50,000
Cost of goods sold 3,40,000
Operating expenses 2,10,000
Totals 20,00,000 20,00,000

Required: Compute return on investment using:
1. Gross Assets
2. Net Assets

3. Gross Assets employed
4. Net Assets employed
5. Beginning owners equity
6. Ending owners equity
Solution:
1.
Income Statement `
Sales 7,50,000
Less: cost of goods sold 3,40,000
Operating expenses 2,10,000 5,50,000
Operating profit 2,00,000
Gross Assets:
Current Assets 2,00,000
Fixed Assets 9,00,000
Land held for investment 3,00,000 14,00,000

20,000
ROI on Gross Assets = = 14.3%
1400000

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