A division has net assets of £580,000. The profit statement for the division for the latest period is: £ Revenue 850,000 Variable costs 410,000 Contribution 440,000 Attributable fixed costs 110,000 Central fixed costs 95,000 Divisional profit 235,000

A division has net assets of £580,000. The profit statement for the division for the latest period is: £ Revenue 850,000 Variable costs 410,000 Contribution 440,000 Attributable fixed costs 110,000 Central fixed costs 95,000 Divisional profit 235,000

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter14: Decentralized Operations

Section: Chapter Questions

Problem 3SEQ: Division A of Kern Co. has sales of $350,000, cost of goods sold of $200,000, operating expenses of...

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Question

A division has net assets of £580,000. The profit statement for the division for the latest period is:

Revenue 850,000

Variable costs 410,000

Contribution 440,000

Attributable fixed costs 110,000

Central fixed costs 95,000

Divisional profit 235,000

The divisional manager is considering a new project which requires an investment of £200,000 but is expected to generate a return of £18,000 per annum.

The manager is assessed on his performance, not the performance of the division, using Return on Investment as a measure.

Required:

Advise, with supporting calculations, whether this project will be beneficial to the divisional manager.
Advise with supporting calculations whether the project would be beneficial to the manager if he was assessed on the performance of the division rather than his own performance.

Formula Formula ROI (%) = Net Income Principal Amount × 100

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