Advanced Managerial Accounting

1Running head: ADVANCED MANAGERIAL ACCOUNTING
ADVANCED MANAGERIAL ACCOUNTING
Semester 1, 2019
INDIVIDUAL ASSIGNMENT
Name of Student
Institution Affiliation

2ADVANCED MANAGERIAL ACCOUNTING
Table of Contents
Introduction..................................................................................................................3
Question 1 Return on Investment (ROI) and Performance Evaluation........................3
A) Summer Fisheries Case Analysis.....................................................................3
1. Divisional Return on Investment (ROI).......................................................3
2. Divisional Performance Evaluation.............................................................3
3. Economic Value Added (EVA)....................................................................4
4. Divisional Financial Performance................................................................4
5. Recommended Adjustments.......................................................................5
B) Residual Income (RI)........................................................................................5
Question 2: Transfer Pricing and Risk Management...................................................5
(A) The Ace Computer Company Case................................................................5
(B) Types of Transfer Price and Activity-based Costing........................................6
Question 3: Performance Measures and Incentive Schemes.....................................7
Conclusion.................................................................................................................. 8
References..................................................................................................................9

3ADVANCED MANAGERIAL ACCOUNTING
Introduction
This paper addresses three main topic in managerial accounting, namely
performance evaluation using financial measures such as return on investment,
transfer pricing, and incentives and rewards in human resource management. To
show critical thinking in strategic management decision, this paper answers different
questions based on different cases, and interprets the results results here in.
Question 1 Return on Investment (ROI) and Performance Evaluation.
A) Summer Fisheries Case Analysis
1. Divisional Return on Investment (ROI)
To calculate the return on investment (ROI) for each division we first find the net
operating profit after tax (NOPAT), which is equal to the operating profit before tax
minus the tax at a rate of 28 percent. The invested capital is obtained by subtracting
the current liabilities from the total assets. Thus, ROI is calculated as NOPAT divided
by invested capital (Hansen & Mowen, 2007), as indicated in the table below.
South Island
division ($000)
North Island
division ($000)
Fishing Fleet
division ($000)
Operating profit before tax $5,400 $1,200 $900
Tax (28%) $1,512 $336 $252
Net Operating profit
after tax $3,888 $864 $648
Total assets $52,500 $6,000 $25,200
Current liabilities $12,000 $3,000 $2,400
Invested Capital $40,500 $3,000 $22,800
ROI 9.60% 28.80% 2.84%
2. Divisional Performance Evaluation
The best performing division based on the calculated ROI is North Island
Division with 28.80% return on investment, followed by the South Island division with
9.60%, and the worst performance was from the Fishing Fleet division with ROI of
2.84%.
Nonetheless, when interpreting divisional performance using return on investment,