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A division has net assets of £580,000.  The profit statement for the division for the latest period is:                                                 £ Revenue                                  850,000 Variable costs                         410,000 Contribution                             440,000 Attributable fixed costs           110,000 Central fixed costs                    95,000 Divisional profit                       235,000

A division has net assets of £580,000.  The profit statement for the division for the latest period is:                                                 £ Revenue                                  850,000 Variable costs                         410,000 Contribution                             440,000 Attributable fixed costs           110,000 Central fixed costs                    95,000 Divisional profit                       235,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A division has net assets of £580,000.  The profit statement for the division for the latest period is:

                                                £

Revenue                                  850,000

Variable costs                         410,000

Contribution                             440,000

Attributable fixed costs           110,000

Central fixed costs                    95,000

Divisional profit                       235,000

The divisional manager is considering a new project which requires an investment of £200,000 but is expected to generate a return of £18,000 per annum. 

The manager is assessed on his performance, not the performance of the division, using Return on Investment as a measure.

 

Required:

  1. Advise, with supporting calculations, whether this project will be beneficial to the divisional manager.
  2. Advise with supporting calculations whether the project would be beneficial to the manager if he was assessed on the performance of the division rather than his own performance.
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