1. Problem 1 – Return on Investment (ROI): The company invested 1,000,000 and generates annual operating income of 250,000. ROI is calculated as: $$ ROI = \frac{\text{Operating Income}}{\text{Investment}} \times 100 = \frac{250,000}{1,000,000} \times 100 = 25\% $$ Interpretation: The ROI of 25% means the company earns 25 pesos per 100 pesos invested annually. Management should consider continuing investments in similar projects if 25% meets or exceeds their target return. 2. Problem 2 – Residual Income (RI): Division A: Operating Income = 500,000 Total Assets = 2,000,000 Minimum required return = 10% First, compute the required income: $$ \text{Required Income} = \text{Total Assets} \times \text{Minimum Return} = 2,000,000 \times 0.10 = 200,000 $$ Calculate RI: $$ RI = \text{Operating Income} - \text{Required Income} = 500,000 - 200,000 = 300,000 $$ Interpretation: A positive RI of 300,000 means Division A exceeded performance expectations. 3. Problem 3 – KPI Selection: Suggested KPIs: - Customer Satisfaction Score (e.g., survey ratings) to measure customer happiness and retention. - Cost per Room Occupied to monitor cost efficiency. - Average Response Time to Customer Complaints to improve service quality. Each KPI supports goals by focusing on satisfaction and efficient operations. 4. Problem 4 – Benchmarking Application: Retail store turnover: 6 times vs industry average 8 times. Possible reasons: 1) Overstocking reducing turnover rate. 2) Slow sales due to poor marketing or pricing. Proposed actions: - Improve inventory management to reduce excess stock. - Enhance marketing strategies or adjust prices to boost sales. 5. Problem 5 – Relevant Costing Decision: Given: Special order units = 500 Special order price per unit = 250 Variable cost per unit = 220 Fixed costs unchanged (not relevant for this decision). Calculate incremental profit: $$ \text{Profit per unit} = \text{Special order price} - \text{Variable cost} = 250 - 220 = 30 $$ Total profit from special order: $$ 30 \times 500 = 15,000 $$ Since profit is positive and fixed costs remain unchanged, company should accept the special order.