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Task 4
a) Although Return on Investment (ROI) is widely used in evaluating performance,
it is subject to criticisms. Discuss.
b) The magnetic imaging division of Beach Hospital Berhad has reported the
following results for the operations ending on 31 December 2013.
$ (000)
Net sales
25,000
Earnings before interest and taxes
3,000
Average operating assets
10,000
Required:
i. Compute magnetic imaging divisions margin, turnover and ROI.
ii. The board of directors of Beach Hospital Berhad has set a minimum required
rate of return on average operating assets of 25%. What is the magnetic imaging
divisions residual income for the year?
Task 5
A-One Bags Company makes rolling suitcases. Its sales budget for the first
quarter 2014 is as follows:
January
February
March
April
Unit sales
15,000
20,000
40,000
60,000
A-One Bags policy is that ending inventory of finished suitcases should equal 30
percent of the next month's sales. The beginning inventory as at 1 January 2014
is 5,300 suitcases. Each suitcase required 1.5 metres of ballistic nylon. The
ending inventory policy for nylon is that 20 percent of the following month's
production needs must be on hand. On 1 January 2014, A-One Bags had 10,450
metres of nylon in inventory.
Required:
a. What is the desired ending inventory of suitcases for February?
b. What is the budgeted production of suitcases for February?
c. What is the desired ending inventory of nylon for January?
d. What are the budgeted metres of nylon to be purchased in January?
e. Assuming each suitcase required two metres of ballistic nylon, what is the
desired ending inventory of nylon for January?
THIS IS THE END OF THE EXAM PAPER
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