Page 94 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 4: Responsibility Centers

Solution: Notes
(Rupees)
Division A Division B Division C
(a) Net income:
Sales 2,25,000 90,000 6,00,000
Less: cost of goods sold 1,05,000 37,500 3,60,000
Operating expenses 90,000 30,000 1,50,000
1,95,000 67,500 5,10,000
Net income 30,000 22,500 90,000
Rank 2 3 1
(b) Gross Assets:
Current assets 75,000 30,000 1,20,000
Land held for investment - 1,20,000 -
Fixed assets (gross) 1,80,000 1,50,000 7,50,000
Gross assets 2,55,000 3,00,000 8,70,000
Net income 11.8% 7.5% 10.3%
ROI using gross assets = ´ 100
Gross assets
Rank 1 3 2
(c) Net Assets:
Gross Assets as per (b) 2,55,000 3,00,000 8,70,000
Less: Accumulated depreciation 90,000 15,000 5,25,000
Net assets 1,65,000 2,85,000 3,45,000
Net income 18.2% 7.9% 26.1%
ROI using net assets = ´ 100
Gross assets
Rank 2 3 1
(d) Gross Assets employed:
Gross assets as per (b) 2,55,000 3,00,000 8,70,000
Less: Land held for investment - 1,20,000 -
Gross assets employed 2,55,000 1,80,000 8,70,000
ROI using gross assets employed 11.8% 12.5% 10.3%
Net income
= ´ 100
Gross assets emp
Rank 2 1 3
(e) Net income as per (a) above: 30,000 22,500 90,000
Less: 15% of Net assets as per © above 24,750 42,750 51,750
Residual income 5,250 (-)20,250 38,250
Rank 2 3 1
(f) Net income as per (a) above: 30,000 22,500 90,000
Sales as per (a) 2,25,000 90,000 6,00,000
Income as a percentage on sales 13.3% 25.0% 15%
Rank 3 1 2
(g) Comparative rank as per (a): 2 3 1
Comparative rank as per (b) 1 3 2
Comparative rank as per (c) 2 3 1
Comparative rank as per (d) 2 1 3
Comparative rank as per (e) 2 3 1
Comparative rank as per (f) 3 1 2
Total points 12 14 10

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