The Divisional Managers of West Plc Have Requested That the Method

question 65

Multiple Choice

The divisional managers of West plc have requested that the method for calculating bonuses at the year be reviewed. Senior managers at the head office have proposed that a bonus of £40,000 will be paid to the divisional manager who has the best return on investment (ROI) of the 3 divisions and this policy is consistent with previous years. Divisional managers want the senior managers to take into account controllable costs and profits and residual income (RI) when deciding bonuses and also to include non-financial measures of performance. The main reason given by the head office for using ROI is that it is understood by all managers and that it is used by external analysts.
Summary of Management Accounts to 31 December 1997
$\begin{array}{|l|l|l|l|}\hline & \text { Southern }(£) & \text { Eastern }(£) & \text { Western }(£) \\\hline \text { Sales } & 5,400,000 & 5,000,000 & 5,590,000 \\\hline \text { Controllable costs } & 3,700,000 & 3,502,000 & 3,660,000 \\\hline \text { Head Office Charges } & 998,000 & 1,282,000 & 1,170,000 \\\hline \text { Net Profit } & 702,000 & 716,000 & 760,000 \\\hline\end{array}$

Capital Employed
$\begin{array}{|l|l|l|l|}\hline & \text { Southern }(£) & \text { Eastern }(£) & \text { Western }(£) \\\hline \text { Total Investment } & 4,700,000 & 5,100,000 & 5,200,000 \\\hline \text { Controllable Investment } & 4,000,000 & 4,100,000 & 4,274,000 \\\hline\end{array}$
Cost of Capital
The head office has estimated that the group cost of capital is 10%
Financial and non-financial measures of performance
The divisional managers normally report on a wide range of financial measures each month to the head office but only use non-financial measures internally and each divisional manager is allowed to use their discretion when deciding on the range and number of measures to use.
- Calculate the Return on Investment for the Southern Division

• A)14.9%.
• B)12.3%.
• C)2.8%.
• D)4.5%.

Identify the qualitative and quantitative factors involved in make-or-buy decisions.

Differentiate between various capital budgeting approaches and understand their conceptual desirability.

Understand different types of power and their impact on influencing others.

Identify and differentiate between various influence tactics.

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Definitions:

Unhealthy

Describes conditions, habits, or behaviors that are detrimental to one's physical or mental well-being.

Borderline

Borderline often refers to borderline personality disorder (BPD), a mental health condition characterized by unstable moods, behavior, relationships, and self-image.

Unstable

Lacking consistency, predictability or reliability, often used to describe emotional states or chemical compounds.

Manipulation

An action or strategy carefully designed to change a person's behavior or perception in a subtle or overt way.