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Category > Management Posted 04 Apr 2018 My Price 9.00

Glasnost plc

Q: Glasnost plc. is a large business organized on divisional lines. Two typical divisions are East a

Glasnost plc. is a large business organized on divisional lines. Two typical divisions are East and West. They are engaged in broadly similar activities and, therefore, central management compares their results to help it to make judgments on managerial performance. Both divisions are regarded as investment centers. A summary of last year’s financial results of the two divisions is as follows:


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West

East
 

£000 £000

£000 £000

Capital employed

2,500

500

Sales revenue

1,000

400

Manufacturing cost:

    

Glasnost plc. is a large business organized on divisional lines. Two typical divisions are East and West. They are engaged in broadly similar activities and, therefore, central management compares their results to help it to make judgments on managerial performance. Both divisions are regarded as investment centers. A summary of last year’s financial results of the two divisions is as follows:

 

West

East
 

£000 £000

£000 £000

Capital employed

2,500

500

Sales revenue

1,000

400

Manufacturing cost:

    

Direct

(300)

(212)

Indirect

(220)

(48)

Selling and distribution cost

(180) (700)

(40) (300)

Divisional profit

300

100

Apportionment of uncontrollable common

    

overhead costs

(50)

(20)

Profit for the period

250

80

At the beginning of last year, West division incurred substantial expenditure on automated production lines and new equipment. East has quite old plant. Approximately 50 per cent of the sales revenue of East comes from internal transfers to other divisions within the business. These transfers are based on an unadjusted prevailing market price. The inter-divisional transfers of West are minimal. Management of the business focuses on return on investment as a major performance indicator. The required minimum rate of return is the business’s cost of capital of 10 percent a year.

Required:

(a) Compute any ratios (or other measures) that you consider will help in an assessment of the costs and performance of the two divisions.

(b) Comment on this performance, making reference to any matters that give cause for concern when comparing the divisions or in divisional performance generally.

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Answers

Maurice Tutor
(5)
Status NEW Posted 04 Apr 2018 08:04 PM My Price 9.00

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