Question 5
ICAN
•
2025
•
PERFORMANCE MANAGEMENT
•
mixed
Case Stimulus
ABC Nigeria Plc has three separate divisions – North, East and West divisions, each operating as an investment centre within the group. East Division makes and sells three products, A, B and C. All three products are sold under a brand name Alpha label, but Product A and Product B are also sold through a sales outfit as beta branded products.
Budgeted data for the year to December 31, 2024 is as follows:
Product sales
Product A Product B Product C
Units Units Units
Alpha brand 160,000 120,000 50,000
Beta brand 450,000 600,000 -
Selling prices Product A Product B Product C
₦ per unit ₦ per unit ₦ per unit
Alpha brand 5.00 6.40 10.00
Beta brand 3.00 4.00 -
Variable costs Production Packaging
Nper unit Nper unit
Product A:
Alpha brand 2.40 0.60
Beta brand 2.40 0.20
Product B:
Alpha brand 3.20 0.80
Beta brand 3.20 0.40
Product C:
Alpha brand 5.00 1.00
Budgeted marketing expenditure is ₦300,000 for the year, and other budgeted
expenditure for other fixed costs is ₦700,000. The average capital employed in East
Division in Year 2024 is expected to be ₦1,000,000 and each division‟s cost of capital
is 12%.
Additional Information
{
"label": "Supporting information 1",
"content": "| Product sales | Product A Units | Product B Units | Product C Units |\n|--------------|----------------|----------------|----------------|\n| Alpha brand | 160,000 | 120,000 | 50,000 |\n| Beta brand | 450,000 | 600,000 | - |\n\n| Selling prices | Product A ₦ per unit | Product B ₦ per unit | Product C ₦ per unit |\n|----------------|---------------------|---------------------|---------------------|\n| Alpha brand | 5.00 | 6.40 | 10.00 |\n| Beta brand | 3.00 | 4.00 | - |\n\n| Variable costs | Production ₦ per unit | Packaging ₦ per unit |\n|----------------|----------------------|---------------------|\n| Product A: | | |\n| Alpha brand | 2.40 | 0.60 |\n| Beta brand | 2.40 | 0.20 |\n| Product B: | | |\n| Alpha brand | 3.20 | 0.80 |\n| Beta brand | 3.20 | 0.40 |\n| Product C: | | |\n| Alpha brand | 5.00 | 1.00 |"
}
Requirements
(
a
)
Calculate the budgeted Return on investment for East Division for the year to December 31, 2024.
(
b
)
Calculate the budgeted residual income for East Division for the year to December 31, 2024.
(
c
)
What are the advantages of return on investment measure over the residual income approach of divisional performance appraisal.
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About This Question
This is
Ican
2025
Performance Management
Question 5.
It is one of the
mixed
questions from the
2025
Ican
Performance Management
examination.