The Madison Company purchased the Tek Company three years ago. Before the acquisition, Tek manufactured and sold plastic products to various customers. Tek has since become a division of Madison and now manufactures plastic Tek products only for products made by Madison's Macon division. Macon sells its products to hardware wholesalers.
Madison's corporate management gives the Tek division management a considerable amount of authority in running the division's operations. However, corporate management retains authority for decisions about capital investments, price setting on all products, and the quantity of each product to be produced by the Tek division.
Madison has a formal performance evaluation program for the management of all of its divisions. The performance evaluation program relies heavily on each division's return on investment. The income statement below for the Tek division is the basis for evaluating Tek's management.
The financial statements for the divisions are prepared by the corporate accounting staff. Costs for corporate general services are allocated to each division based on their sales dollars. The computer department's actual costs are allocated to the divisions based on usage. The net division investment includes the division's fixed assets at net book value (cost less depreciation), division inventory, and corporate working capital that is allocated to each based on the division's sales dollars.

Instructions
(a) Discuss Madison Company's financial reporting and performance evaluation program as it relates to the responsibilities of the Tek division.
(b) Based on your answer to part (a), recommend appropriate revisions of the financial information and reports that Madison uses to evaluate the performance of Tek's management. If revisions are not necessary, explain why they are not needed.

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TEK DIVISION OF MADISON COMPANY Income Statement Year Ended March 31, 2016 (in thousands) Sales Costs and expenses $4,000 Product costs Direct materials Direct labour Factory overhead $ 500 1,100 1,300 2,900 350 Total Less: Increase in inventory gineering and research 2,550 120 240 En Shipping and receiving Division administration Manager's office Cost accounting Personnel $210 40 82 332 Corporate costs Computer General services $ 48 230 Total costs and expenses Divisional operating income Net plant investment Return on investment 278 3,520 S 480 $1,600 30%