0 O O O O Question 3 (20 marks) Big and Happy Ltd is a large business organized and managed with a divisional structure. Two typical divisions are Asia-Pacific and Europe. They are engaged in broadly similar activities and, therefore, central management compares their results in order to make judgments on managerial performance. Both divisions are regarded as investment centers. The following is a summary of last year's financial results of the two divisions: Capital Investment Sales Cost of goods sold: Asia-Pacific Europe $'000 $'000 $'000 $'000 2,500 500 1,000 400 Direct material and labour 300 212 Indirect manufacturing overhead 220 520 48 Gross profit 480 Selling and distribution expenses 180 Profit controllable by divisional manager Allocation of central overhead (uncontrollable) 300 50 distribution expenses Profit controllable by divisional manager Allocation of central overhead (uncontrollable) Divisional profit 140 180 40 300 100 50 20 250 80 At the beginning of last year, the Asia-Pacific division incurred substantial expenditure on automated production lines and new equipment. The Europe division has quite old plant. Approximately 50% of the sales of Europe are internal transfers to other divisions within the business. These transfers are based on unadjusted prevailing market price. The inter-divisional transfers of Asia-Pacific are minimal. The management focuses on return on investment as a major performance indicator with a minimum rate of return of 10% per annum. Q3 Required: (a) For the two divisions, calculate the following (based on controllable profit): (i) Return on investment (ROI) (4 marks) (ii) Residual income (RI) (4 marks) (b) Comment on the performance of the two divisions, discussing any matters concerned when comparing divisional (a) For the two divisions, calculate the following (based on controllable profit): (i) Return on investment (ROI) (4 marks) (ii) Residual income (RI) (4 marks) (b) Comment on the performance of the two divisions, discussing any matters concerned when comparing divisional performance. (6 marks) (c) Identify the FOUR perspectives of performance measurement in a Balanced Scorecard management system. Give two examples of performance indicators in each perspective of measurement. Use the following format in your answer: Perspectives Performance indicators (6 marks) H B I X, X* 66 X