Question 3 Tenco Ltd manufactures solar panels. The current maximum capacity is 200,000 panels. The fixed...

  

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Question 3 Tenco Ltd manufactures solar panels. The current maximum capacity is 200,000 panels. The fixed production overheads were allocated based on the maximum capacity. The Statement of Profit or Loss for the year ended 31 December 20X1 of Tenco Ltd are as follows: Sales (120,000 units at $30 per unit) Less: Cost of sales Variable (120k x $14) Fixed Gross profit Fixed selling and administration costs Loss 1,680 1,000 $'000 3,600 2,680 920 1,210 (290) There was no opening or closing inventory for the year 20X1. The Chief Executive Officer (CEO) resigned shortly after the results were announced and the company appointed a new CEO, Mr Sooper. The terms of his appointment include a base salary of $300,000 per annum plus a 40% bonus based on the accounting profits for every full year (before the bonus payment). In the past, the CEOs remuneration were fixed with no variable bonuses. In the first year, that is: for the year ended 31 December 20X2, Mr Sooper, the new CEO, achieved the following: Increased sales by 20% over the previous year. Increased production output to 190,000 units. Selling price and costs remained unchanged except for fixed marketing costs of $200,000. There were no acquisition of property, plant and equipment. Required: (a) (b) (c) (d) Prepare the Statement of Profit or Loss for the year ended 31 December 20X2 using: (1) Absorption costing approach. (ii) Variable costing approach. (3 marks) (3 marks) Calculate the bonus payable (if any) and total remuneration of Mr Sooper, the new Chief Executive Officer based on: (i) The accounting profit reported for the year 20X2. (ii) The variable costing profit for the year 20X2. (2 marks) (2 marks) Evaluate the performance of Mr Sooper the new CEO and explain whether the performance measurement and reward would be more effective if the variable costing profits were used to reward performance. (8 marks) Write a report to the management of Tenco Ltd to recommend strategies on a good performance measurement and reward system and propose any one other suitable performance measures and one reward/incentive (other than those in the question). (7 marks) Question 3 Tenco Ltd manufactures solar panels. The current maximum capacity is 200,000 panels. The fixed production overheads were allocated based on the maximum capacity. The Statement of Profit or Loss for the year ended 31 December 20X1 of Tenco Ltd are as follows: Sales (120,000 units at $30 per unit) Less: Cost of sales Variable (120k x $14) Fixed Gross profit Fixed selling and administration costs Loss 1,680 1,000 $'000 3,600 2,680 920 1,210 (290) There was no opening or closing inventory for the year 20X1. The Chief Executive Officer (CEO) resigned shortly after the results were announced and the company appointed a new CEO, Mr Sooper. The terms of his appointment include a base salary of $300,000 per annum plus a 40% bonus based on the accounting profits for every full year (before the bonus payment). In the past, the CEOs remuneration were fixed with no variable bonuses. In the first year, that is: for the year ended 31 December 20X2, Mr Sooper, the new CEO, achieved the following: Increased sales by 20% over the previous year. Increased production output to 190,000 units. Selling price and costs remained unchanged except for fixed marketing costs of $200,000. There were no acquisition of property, plant and equipment. Required: (a) (b) (c) (d) Prepare the Statement of Profit or Loss for the year ended 31 December 20X2 using: (1) Absorption costing approach. (ii) Variable costing approach. (3 marks) (3 marks) Calculate the bonus payable (if any) and total remuneration of Mr Sooper, the new Chief Executive Officer based on: (i) The accounting profit reported for the year 20X2. (ii) The variable costing profit for the year 20X2. (2 marks) (2 marks) Evaluate the performance of Mr Sooper the new CEO and explain whether the performance measurement and reward would be more effective if the variable costing profits were used to reward performance. (8 marks) Write a report to the management of Tenco Ltd to recommend strategies on a good performance measurement and reward system and propose any one other suitable performance measures and one reward/incentive (other than those in the question). (7 marks)

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a Absorption Costing Sales 190000 units at 30 per unit 5700 Less Cost of sales Variable 190000 x 14 ... View the full answer