Southern Corp. plc has two divisions, A and B, whose respective performance are under review. Division A is currently earning a profit of £35,000 and has net assets of £150,000. Division B currently earns a profit of £70,000 with net assets of £325,000. Southern Corp. plc has a current cost of capital of 15 per cent. Required: a) Using the information above, calculate the return on investment and residual income figures for the two division under review and comment on your results. (11 marks) b) Evaluate which method of performance evaluation (i.e. return on investment or residual income) would be more useful when comparing divisional performance and why. (3 marks) c) List three general aspects of performance measures that would be appropriate for a service sector company. (3 marks) d) Explain the process involved in the budgeting, planning and control process. (9 marks) e) Discuss the advantages of preparing a budget in a corporation.

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Return on investment profits assets Residual income Profits charge on assets profits cost of capital x Assets value Part a Based on these we can complete the table below Parameter Linkage A B Profits ... View the full answer