Subject : Accounting Topic : Management Accounting practice in changing business environment & perfomance measurement system (PMS)

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QUESTION 2 Gardenew Supplies is a manufacturer and supplier of bread and bun, as well as multi flavour of spreads. The operation of Gardenew Supplies is carried out by four divisions and the performance of the divisions is evaluated using return on investment (ROI). The company has set the policy that any division that achieves a minimum of 4% increases in ROI compared to the previous year is entitled for special incentive. The incentive includes the bonusses and additional fund allocation for new investment. Gardenew Supplies finances its investments using both equity and debt capital. The expected cost of equity is 10.8% whilst the cost of debt before tax is 6.7%. the market value of the equity and long-term debts is RM3,840,000 and RM2,400,000 respectively. The tax rate is expected to be 30%. The Loaf Division and Croissant Division are two divisions which involves in similar activities. In the year 2020 the ROI was 9% for Loaf Division and 7% for Croissant Division. The manager of Loaf Division is very confident that his division will once again be qualified for the incentives based on 2020's performances. The forecasted financial results for the two divisions for the 2021 are as follows: Total current Total current Total net fixed Net profit after assets liabilities assets tax (RM) (RM) (RM) (RM) Loaf Division 375,000 990,000 5,955,000 504,000 Croissant Division 420,000 1,050,000 6,045,000 327,600 Required: (a) Assess the eligibility of the Loaf Division and Croissant Division for the incentives for 2021. (5 marks) (b) Comment on the performance of each division if Gardenew Supplies change its current performance measure to Economic Value Added (EVA). (5 marks) (Total: 10 marks) QUESTION 2 Gardenew Supplies is a manufacturer and supplier of bread and bun, as well as multi flavour of spreads. The operation of Gardenew Supplies is carried out by four divisions and the performance of the divisions is evaluated using return on investment (ROI). The company has set the policy that any division that achieves a minimum of 4% increases in ROI compared to the previous year is entitled for special incentive. The incentive includes the bonusses and additional fund allocation for new investment. Gardenew Supplies finances its investments using both equity and debt capital. The expected cost of equity is 10.8% whilst the cost of debt before tax is 6.7%. the market value of the equity and long-term debts is RM3,840,000 and RM2,400,000 respectively. The tax rate is expected to be 30%. The Loaf Division and Croissant Division are two divisions which involves in similar activities. In the year 2020 the ROI was 9% for Loaf Division and 7% for Croissant Division. The manager of Loaf Division is very confident that his division will once again be qualified for the incentives based on 2020's performances. The forecasted financial results for the two divisions for the 2021 are as follows: Total current Total current Total net fixed Net profit after assets liabilities assets tax (RM) (RM) (RM) (RM) Loaf Division 375,000 990,000 5,955,000 504,000 Croissant Division 420,000 1,050,000 6,045,000 327,600 Required: (a) Assess the eligibility of the Loaf Division and Croissant Division for the incentives for 2021. (5 marks) (b) Comment on the performance of each division if Gardenew Supplies change its current performance measure to Economic Value Added (EVA). (5 marks) (Total: 10 marks)