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• Subject Code : MP214
• University : Wentworth Institute of Technology
• Subject Name : General Accounting and Finance

## Question 1 – Managing Performance

1. The advantage of using contribution margin format for performance evaluation of units and managers

Contribution margin generally reflects the profitability of the company on each unit that is being sold. This thus help substantially the managers in calculating the performance as in a decentralized organization, each units are assigned some particular operational and also the decision making responsibilities which makes them to get benefit. Not only this, under the contribution margin format, as the fixed costs to be incurred in the production of goods and services is fixed, so it gives them added advantage of measuring their performance and also it helps them in knowing whether the selling price and also the sales volume should be increased. Thus it makes them independent and responsible in measuring their performance.

1. If you were the chief executive, would you choose a centralised or decentralised structure for the following organizations
1. Hospital- In this decentralized structure would be chosen as decisions in hospital would be taken at various levels which would thus lead towards maintaining the decentralized environment. Also the quick decision and the better ability of expanding company would play important role that would help me as a Chief Executive to take important decisions.
2. High school with two campuses – In this centralized structure would be used because the decision making factors would completely be retained in the head office and all other offices or department head would be receiving the commands from main head. Also as I am the chief executive, so the decisions would lie under my authority and so this would ensure the complete organized structure.

## Question 2- Financial Performance Measures

1. Sher manufacturing has two divisions
2. Roi for Both Divisions

FURNISHING DEPARTMENT= PROFIT/ INVESTED CAPITAL

= 5400000/11250000

=0.48

DRESS MAKING DIVISION = PROFIT/ INVESTED CAPITAL

= 9270000/10687500

= 0.87

1. Residual Income

FURNISHING DEPARTMENT= PROFIT- (INVESTED CAPITAL *IMPUTED INTEREST RATE)

= 5400000- (11250000*.12)

= 5400000-1350000

= \$4050000

DRESS MAKING DIVISION= PROFIT- (INVESTED CAPITAL *IMPUTED INTEREST RATE)

= 9270000- (10687500*.12)

= 9270000-1282500

= \$7987500

• The more successful division among both departments was dress making division because of the fact that it is having good ROI of 87% and also along with this the residual income for this is \$7987500 which is substantially higher than the furnishing department. Thus these ROI and residual income factors would help in making further profits for the department.
1. Giratina is a retailer and is a division of a larger retail company
2. Profit= Sales revenue- (Fixed cost+ Variable costs)

= 8400000 – (2150000+ 5880000)

= 8400000- 8030000

= \$ 370000

Return on sales = Profit/ Sales revenue

= 370000/ 8400000

= 4.4%

Investment turnover = Sales revenue/invested capital

= 8400000/1850000

= 4.54

Return on Investment= Return on sales* Investment turnover

= 0.2 or 20%

1. For improving the ROI, the division can increase return on sales and also can increase the investment turnover as these would help company in earning substantial amount of profit in the short years.

## Question 3- Balance Scorecard

1. The strategic priorities as identified by the senior management involve:

On- time delivery: The three performance measures for this would be

• Growth in revenue
• Increase in customers
• Improving the product and service innovation
 Strategies identified Business objective Customer On Time delivery · Growing the market share · Improving the customer loyalty Internal · Saving the time · Improving the process Learning and growth · Improving and indulging in latest technology · Increasing the motivation

Product quality: Three performance measures are:

 Strategies identified Business objective Customer Product quality · Increasing the customer satisfaction · Building more customers Internal · Reducing the carbon footprint · Improving the production process Learning and growth · Developing more customer base · Increasing the motivation
1. Yes, the achievement of these performance measures as mentioned above will help in achieving the high profitability because these performance measures would help in operating well for the business and along with this increased customer base and also adoption of technology would help in increasing ROI that would thus help in making sufficient profit for the organization. Also for an organization, it is very much difficult to operate without customers, thus improved production process would increase the base of customer that would thus lead towards earning good amount of revenue.

## Question 4- Standard Costing

• Two variances for direct material
1. Direct material price variance
1. Actual material cost = actual quantity purchased * actual price

= 200000*2.78

= \$ 556000

1. Budget for material = actual quantity purchased* standard price

= 200000*2.75

= \$550000

So, here \$ 6000 is the unfavorable direct material price variance

1. Direct material quantity variance
1. Budget for material= Actual quantity used* Standard price

= 101800 * 2.75

= 279950

1. Flexible budget = Standard quantity allowed * Standard price

= 101000* 2.75

= \$ 277750

So, here 200 is unfavorable direct material quantity variance

1. ii) Two variances for direct labour
1. Direct labour rate variance

Actual labour cost= Actual hours * Actual rate

= 8300 * 6.48

=\$ 53784

Budget for labour = Actual hours*Standard rate

= 8300 * 6.40

=\$ 53120

So, here, 664 is unfavourable direct labour rate variance

1. Direct labour efficiency variance

Budget for labour = Actual hours*Standard rate

= 8300 * 6.40

=\$ 53120

Flexible budget for labour = Standard hours allowed * Standard rate

= 8000* 6.40

= \$ 51200

So, here it is 1920 unfavourable direct labour efficiency variance

Budget for variable overhead = Actual direct labour hours* Standard rate

= 8300* 6.40

=\$ 53120

Here it is favourable variable overhead variance

Budget for variable overhead = Actual direct labour hours* Standard rate

= 8300* 6.40

=\$ 53120

Flexible budget = Standard direct labour hours allowed * Standard rate

= 8000 * 6.40

= \$ 51200

So it is unfavourable here

= 28000 – 12000

= 16000

= 28400 – 12000

= 16400

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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