Explain the fundamental differences between the traditional and the activity-based costing systems and illustrate how activity base costing system can be used in service organizations
b) A Ltd has provided the following information:
1. Additional investment required is Shs. 600,000 for 6 years and nil residual value
2. Average net profit per year is Shs 90,000 (after depreciation) 3. Cost of capital is 14%
4. Existing capital employed is Shs 3,000,000 with ROCE of 20
Required:
Illustrate the conflicting investment decision responses that may result from the use of the following performance measures:
(i) Return on capital employed
(ii) Residual Income
(iii)Discounted future earnings