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About the point number two; the book, says “If a manager’s large bonus depends on ROI being met, the manager may feel pressure to massage the measure. The asset base of the ratio can be altered by increasing/decreasing payables and receivables (by speeding up or delaying payments and receipts).”
The “asset base ratio” may indicate the “profit” (cost of sales) and the “capital employed” (current asset and current liabilities) as in the ROI and also RI formula. Therefore, manager can easily manupulate their performance evaluation (ROI and RI) by altering the profit and capital employed figure.
ROI = profit ÷ capital employed
RI = profit – notional interest cost.Is my understanding correct or not?
Hi John,
ACCA didnt provide answer for profit derivation for demand option 350,000 bags under poor weather = $325,000. Could you pls show the calculation for this. Thank you for your guidance.
Thank you. I have one more question about cost. Which of these two answer is correct?
Question:
Direct labour : Each unit of product NP8 will require 0.50 hours of direct labour time. However it is expected that there will be unavoidable idle time equal to 5% of the total labour time paid for. Labour is paid $19 per hour.Production OH : It is expected that production overheads will be absorbed into product costs at the rate of $60 per direct labour hour, for each active hour worked. (Overheads are not absorbed into the cost of idle time).
Answer:
Production overheads: 0.5 hours x $60 = $30or
Production overheads: 0.5 hours x $60 x 0.95 = $28.50
Thank you