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Hi,
Understand the question P5 June 2015 4(b) split into 2 parts for 7 marks:1) calculate ROI and RI
2) Assess impact of the assumption made when calculating these metrics
on the evaluation of the performance and its management.my question:
based on the answer given, don’t understand what assumption need to made?
and how we know the working for ROI and RI need to show controllable profit, profit after
R&D ?? isn’t because it is division? why R&D need to show after controllable profit?
Read the answer but don’t quite understand.Anyone can explain to me. Thanks
Hi Cpboon!
To try and answer your questions. First of all I think that the controllable and uncontrollable ROI and RI shall be calculated in this question as these information are going to be useful to the management in assessing the impacts of these assumptions (of using controllable and non controllable profits) in calculating the metrics for a division.
On your second question, R&D cost is usually non controllable but if the Baby Division has requested specifically for the R&D and where the transfer price has been widely agreed (hence Baby Division have to pay R&D for its services of $11m) then it becomes controllable and should be included in calculation of controllable profits (ROI and RI).
However, in this case, R&D is considered non controllable. A controllable profit is given at $99m. So use this figure instead.
I hope to have answered your questions and good luck to us this upcoming exam! 🙂
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