RI – Annualised residual income and Q82 Biscuits and cakes

Hi Sir John,

Q: I would like to ask what does it mean imputed interest. I watched your video about ROI/RI and you explained only notional as a considered interest. So, does it mean that imputed interest has happened and therefore you add it? But the notional interst didn’t happen yet?

Q: Bicuits and Cakes BPP Kit/ Q82.

part e) Explain any behavioral problems that will result if the company’s senior management insist on using solely ROI, based on net profit.

it is for 4 marks question. There is problem between staff and mangers.
Staff- they feel demotivated because they didn’t met ROI target because the Head office has included the Head office cost into ROI computation.
– they will loose therefore bonus.

Management- should investigate these head office costs?

Q: What would you anwer/ add to the question about management?

Part C) Performance based on ROI.
Discuss the expected performance of each of the two divisions , using both ROI an RI, and making any additional calculations deemed necessary. Conclude, as to weather, in your opinion , the two divisions have performed well. (6marks)
Answer:
The ROIs calculated for each division in part a) are both significatnly below the company’s target ROI (20%). This would suggest that both divisions are performing poorly.
Both divisions are now required to deduct a share of head office costs in their operating statments before arriving at net profit which is used to calculate the ROI. BUT THEY company’s target was not reduced.

Q: Sir, do I need include computation of ROI before they started deducted the Head office costs from Net profit?, such as they outlined the “ROI using the old method” computation in the BPP Kit.?