Reference no: EM133040208

QUESTION 1 - Cahaya Berhad is a subsidiary of Simex Berhad. Cahaya Berhad is being monitored based on its return on investment (ROI), with investment defined as average operating assets employed. The rewards and bonuses of the management are determined based on ROI. The average cost of capital is 8 percent of operating investment.

Cahaya Berhad has made a huge investment of RM2,000,000 in Project AA. This Project AA has reported an income of RM200,000 for the year 2014. The company is planning to have an expansion on Project AA, which will require the company to increase its investments in the near future.

Required -

a. Briefly explain the meaning of financial control. Explain how does financial control relates to nonfinancial measures of performance.

b. Compute the current return on investment (ROI) for Cahaya Berhad.

c. Compute the current economic value added (EVA) for Cahaya Berhad.

d. Assume that there is an expansion project that requires a RM200,000 investment for a return of RM18,000.

i. Calculate the new ROI for Cahaya Berhad.

ii. Calculate the new EVA for Cahaya Berhad.

iii. Would the General Manager be more likely to accept the new investment project if his performance was evaluated using ROI or EVA? Briefly explain the reason for his decision?

QUESTION 2 - The Balanced Scorecard (BSC) is a means for measuring and managing all aspects of organizational performance. The Balanced Scorecard translates mission and strategy into objectives and measures. It is a set of measures that gives top management a fast but comprehensive view of the business.

In the global knowledge economy, the creation, sustenance and the application of knowledge has become the key differentiator of success in an organization. Many companies have realised that management of knowledge and the knowledge workers as a critical source of competitive edge than the traditional effective physical asset management.

Required -

a. Explain why managers need a Balanced Scorecard to measure and manage intangible assets for value creation.

b. Critically evaluate the important perspectives of the Balanced Scorecard in assisting organizations to achieve improvements in their operational performance.

c. Briefly explain THREE (3) common pitfalls in implementing the Balanced Scorecard and suggest ways to avoid the pitfalls.

QUESTION 3 - A. Cantik Berhad manufactures and sells pottery products to departmental stores. The management accountant is preparing the annual budget and has asked the sales group to prepare the sales estimates. All members of the sales force have been asked to estimate sales in their territory for their products.

It is found that the sales director uses the sales estimates to develop the target levels at which commissions begin. Specifically, the sales manager takes the sales estimate, add 15%, and the result becomes the sales hurdle level. If sales are less than the hurdle level, no commission is paid. If sales are above the hurdle level, commissions are paid at varying rates.

Required -

a. What will be the behaviour of the sales force if they know the relationship between their estimates and the target level of sales?

b. What is the likely consequence of basing the company's budgets on these estimates?

c. If you were the management accountant in this company and were responsible for both reward system and budgeting system, what would you do?