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Activity 3 Austpac Ltd has spent $468,900 on a research project. Mr Fernando asked the management accountant to report on this project. The...

Activity 3

 

Austpac Ltd has spent $468,900 on a research project. Mr Fernando asked the management accountant to report on this project. The accountant informed Mr. Fernando that a further $150,000 will be required to produce a marketable product according to R & D Department. The management accountant further advised Mr Fernando that the lifetime profit potential for this packaging product has a present value of $300,000.

Advise Mr Fernando on the cost/benefit of continuing research on this packaging product.

 


Activity 4

In Austpac Group, the manager of the Plastics Division has to decide on an investment of $150,000 in new machinery which is expected to increase revenue for the division by $20,000 per annum. The present expected annual figures for the Division before this investment follow:

Operating profit (controllable)

$ 400,000

Operating assets (net book value)

$2,849,000

Assume Austpac as a whole has a weighted average cost of capital of 12%.

  1.  

recommendation in response to the following questions:

 

  1.  

If the performance of the Plastic Division manager is judged on ROI, should the manager invest in the new machinery?

 

  1.  

If the performance of the Plastic Division manager is judged on Residual Income (RI), should the manager invest in the new machinery?

 

  1.  

Should the Plastic Division manager use Residual Income in this case?

Activity 5

In the year 2000, Austpac Ltd. is going to invest $10,000,000 on a new line of packaging product. Austpac expects a return of 25% on the capital employed. The factory expects to produce at a normal capacity of 12,500,000 units per year.Average standard manufacturing costs for these 12,500,000 units are expected to be:

Fixed

12,000,000

Variable

8,000,000


TOTAL

                                     20,000,000

Make the following calculations

-      the percentage mark-up required;

-      the standard selling price per unit;

-      the selling price if expected output and sales for the year 2000 would be 90% of normal capacity.


Activity 6

 

In 1997, Austpac Ltd. produced two snack pack products, SP1 and SP2 as follows:

Particulars

Product

SP1

Product

SP2

Total

Sales Variable costs

300,000

135,000

600,000

480,000

900,000

615,000

Contribution margin

165,000

120,000

285,000

Fixed costs

120,000

195,000

315,000

Profit (Loss)

45,000

(75,000)

(30,000)

 

Should Austpac drop product SP2? As a management accountant, provide your advice.




Activity 8

An outlet manager for the Aussie Food Company is being considered for year-end bonus because their divisional return on investment has increased 4%. You have been asked to evaluate the following data and make a recommendation about the bonus.

 

Outlet sales

Outlet income

Outlet assets (net of depreciation)

Year 1

$1,200,000

$60,000

 

$500,000

Year 2

$1,600,000

$64,000

 

$400,000

Required:

  1. Compute the profit margin, investment turnover and return on investment for both years.
  2. Identify the component of return on investment that is responsible for the overall increase in ROI. What may have caused the increase?

Based on your findings, recommendation on whether the manager should be rewarded for the performance of this division? Explain.

 

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