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Applied Econometrics using MATLAB, Management and Cost Accounting, Hid CHAPTER 17.doc

Running Head: CASE STUDY
1. What criticism would you make of the approach to divisional-performance assessment employed by the board of Zeros plc?
The formula for calculating return on investments (ROI) is different from the standard known formula for the same. The return on investment is supposed to evaluate the efficiency of an investment or compare the efficiency of a number of investments. It measures the number of returns on an investment relative to the investment's costs. The use of operating profit that is obtained from standard costing may give a biased figure as it may not necessarily be equal to the returns on investment.
2. Would you agree with Joe Cool's assessment that his division's performance was 'excellent' during 2006 and 2007?
The division performance was not excellent in the years 2006 and 2007. This is because, in that period, there was a sizeable unfavorable variance which the head of the division does not want to address. From the data, the number of sales to have gone down in the year 2017 and thus the company can be said to have been performing poorly in the two years in consideration. In addition, even though the selling price per unit increase in 2007 relative to 2006, the sales volume favorable also decreased in the same period.
3. What suggestions would you make for improving the divisional-performance measurement in Zeros plc?
Suggestion for improving the divisional performance measure is the first, the large unfavorable variance which has been consistently reported. The sales volume seems to be decreasing as the actual selling price per unit is going up. Thus the department needs to analyses its marketing strategies as well as the dynamics of the market. The decrease in sales is an indication of the business getting out of touch with its customers. The company seems to be not experiencing growth from the fact that the production of the year 2006 and 2007 was the same with a higher closing stock in 2007. Analysis of the sales strategies is needed to improve the performance measure of the division.
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