MAC3701 ASSIGNMENT 2 – SEMESTER 1 OF
2022
(a) Calculation of Return on Investment
Calculation of the controllable investment
R
Controllable assets ( 11 925 000
) ( )
(4 320 000)
Controllable Liabilities ( )
Controllable Investment 7 605 000
Calculation of the controllable profit
R
Residual income 290 000
Cost of controllable investment ( ) 463 800
Controllable profit 753 800
Head office allocated costs 178 000
Depreciation ( ) (125 000)
Corrected controllable profit 806 800
Return on Investment =
=
=
Conclusion
The management team of the Spice Division willreceive performance related
bonuses considering that the Division`s Return on Investment of 10.61% is more
than the target of 10%.
, (b) To: Management Team (Spice Division)
From: …..
Date: ……
Subject: Transfer pricing
An investigation on the transfer price of the Chillies was carried out and the findings
are listed below.
(i) Minimum transfer price
Chillies Requirements
Tonnes
Output ( ) 350
(320)
External Demand
Surplus 30
External sales to be sacrificed =( )
=
Calculation of lost contribution
R
Selling price ( ) 15 000
Less variable costs per tonne (12 148)
Direct costs of field preparation & organic pesticides 1 800
Direct labour 4 160
3 888
Variable production overheads ( )
2 000
Packaging ( )
300
Variable Selling costs ( )
Contribution per tonne 2 852
Total lost contribution ( ) 142 600
Lost contribution per tonne ( ) 1 782.50
2022
(a) Calculation of Return on Investment
Calculation of the controllable investment
R
Controllable assets ( 11 925 000
) ( )
(4 320 000)
Controllable Liabilities ( )
Controllable Investment 7 605 000
Calculation of the controllable profit
R
Residual income 290 000
Cost of controllable investment ( ) 463 800
Controllable profit 753 800
Head office allocated costs 178 000
Depreciation ( ) (125 000)
Corrected controllable profit 806 800
Return on Investment =
=
=
Conclusion
The management team of the Spice Division willreceive performance related
bonuses considering that the Division`s Return on Investment of 10.61% is more
than the target of 10%.
, (b) To: Management Team (Spice Division)
From: …..
Date: ……
Subject: Transfer pricing
An investigation on the transfer price of the Chillies was carried out and the findings
are listed below.
(i) Minimum transfer price
Chillies Requirements
Tonnes
Output ( ) 350
(320)
External Demand
Surplus 30
External sales to be sacrificed =( )
=
Calculation of lost contribution
R
Selling price ( ) 15 000
Less variable costs per tonne (12 148)
Direct costs of field preparation & organic pesticides 1 800
Direct labour 4 160
3 888
Variable production overheads ( )
2 000
Packaging ( )
300
Variable Selling costs ( )
Contribution per tonne 2 852
Total lost contribution ( ) 142 600
Lost contribution per tonne ( ) 1 782.50
