Accy 302 Assignment 2
Assignment 2- Sliced Bread Group
Executive Summary * This report is provided to the Board of Directors of Sliced Bread Group advising on a suitable method of performance appraisal for Divisional Managers | Grain | Bakery | Divisional Profit ( in $000s) | 3,260 | 1,741 | HO costs (in $000s) | 440 | 259 | Controllable Divisional Profit (in 000s) | 3,700 | 2,000 | Controllable Divisional Investment (in $000s) | 18,500 | 12,500 | ROCE | 20.0% | 16.0% | * It is arguable that allocated head office costs can be controllable by DMs, as if head office costs are influenced by divisional activity levels and are accurately traced to divisions. * Although capital expenditure is allocated to CM, divisional managers argue the case for their desired level of capital expenditure. Once capital expenditure has been authorized DMs manage the investment and the division benefits from it. It is therefore appropriate to treat the depreciation expense and the investment cost associated with a division’s non-current assets as ‘controllable’ | Grain DM | Bakery DM | ROCE | Reject | Accept | RI | Accept | Accept | Divisional Profit | Accept | Accept |
* RI is the best measure out of three suggested for the performance assessment of DMs. RI is quite flexible as it can be calculated using a WACC specific to each division. However, it is really important that the WACC is correctly estimated otherwise RI will be unrealistic which makes the financial performance measure to be inaccurate
This report is provided to the Board of Directors of Sliced Bread Group advising on a suitable method of performance appraisal for Divisional Managers. This report will include the advantages and disadvantages of using each of the three contemplated approaches to DM performance appraisal, how the use of each of the three measures would affect each DMs decision and some recommendation to the Board of Sliced Bread Group in respect of the most appropriate measure to
Executive Summary * This report is provided to the Board of Directors of Sliced Bread Group advising on a suitable method of performance appraisal for Divisional Managers | Grain | Bakery | Divisional Profit ( in $000s) | 3,260 | 1,741 | HO costs (in $000s) | 440 | 259 | Controllable Divisional Profit (in 000s) | 3,700 | 2,000 | Controllable Divisional Investment (in $000s) | 18,500 | 12,500 | ROCE | 20.0% | 16.0% | * It is arguable that allocated head office costs can be controllable by DMs, as if head office costs are influenced by divisional activity levels and are accurately traced to divisions. * Although capital expenditure is allocated to CM, divisional managers argue the case for their desired level of capital expenditure. Once capital expenditure has been authorized DMs manage the investment and the division benefits from it. It is therefore appropriate to treat the depreciation expense and the investment cost associated with a division’s non-current assets as ‘controllable’ | Grain DM | Bakery DM | ROCE | Reject | Accept | RI | Accept | Accept | Divisional Profit | Accept | Accept |
* RI is the best measure out of three suggested for the performance assessment of DMs. RI is quite flexible as it can be calculated using a WACC specific to each division. However, it is really important that the WACC is correctly estimated otherwise RI will be unrealistic which makes the financial performance measure to be inaccurate
This report is provided to the Board of Directors of Sliced Bread Group advising on a suitable method of performance appraisal for Divisional Managers. This report will include the advantages and disadvantages of using each of the three contemplated approaches to DM performance appraisal, how the use of each of the three measures would affect each DMs decision and some recommendation to the Board of Sliced Bread Group in respect of the most appropriate measure to