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Assignment needs to be completed by end of day September 6th, 2022


Chartered Professional Accountants of Canada, CPA Canada, CPA are trademarks and/or certification marks of the Chartered Professional Accountants of Canada. © 2022, Chartered Professional Accountants of Canada. All Rights Reserved. Les désignations « Comptables professionnels agréés du Canada », « CPA Canada » et « CPA » sont des marques de commerce ou de certification de Comptables professionnels agréés du Canada. © 2022 Comptables professionnels agréés du Canada. Tous droits réservés. 2021-10-13 Performance Management — Practice Case 7 Case (120 minutes) You, CPA, work as the assistant controller for A-Plus Corp (A-Plus). You are currently working on a project with the mergers and acquisitions group, which is responsible for integrating the recent acquisition of Business Intelligence Management Inc. (BIM), a portable PC producer with two geographical divisions: Saskatchewan and Alberta (Appendix I). It is May 7, 2022, and the CFO has recently discovered that the two divisional managers responsible for BIM’s operations are due to be paid their 2021 performance bonuses in less than a week. The CFO provided you with the financial and non-financial data for the operations in Saskatchewan and Alberta (Appendix II). Both managers’ employment agreements state the following: 1. The bonus must be paid by May 13, 2022. 2. The bonus amount is capped at $110,000. 3. The bonus amount awarded must be justified in writing. There hasn’t been a structured approach for determining the managers’ bonuses in the past. Therefore, the CFO is debating between two bonus structures and has asked you to discuss and calculate the bonuses under each option and provide a recommendation on which bonus structure to use. Specifically: 1. The CFO would like you to assess what type of responsibility centre these two divisions are, and to identify a relevant financial measure to assess performance of the divisions based on that classification. He would like you to use the divisional performance (related to that measure) to determine the managers’ bonuses. 2. The CFO would like you to draft a balanced scorecard that both divisions can use. He would like you to assess each division’s performance based on that scorecard and determine the managers’ bonuses based on the divisional performance. The CFO also received a call from the Saskatchewan division manager about concerns over divisional financial performance. The Saskatchewan division manufactures wafer chips that it uses in its own products and also provides wafer chips to the Alberta division for its production needs (Appendix I). The manager is concerned about the impact of the transfer on her division’s financial performance. Specifically, the Saskatchewan division manager is worried how it will impact her bonus. The CFO has asked you to recommend an appropriate transfer pricing policy and determine the impact on divisional results. Your response should be no longer than 3,600 words, excluding any Excel files. Performance Management — Practice Case 7 Case 2 / 4 Appendix I Background information Until recently, A-Plus focused on sourcing no-name electronics from Asian countries and then reselling these goods to electronics retailers in North America. On January 1, 2022, A-Plus expanded into electronics manufacturing by acquiring BIM, which specializes in manufacturing portable PC devices, such as laptops. BIM employs 700 individuals. BIM’s operations are divided into two geographical regions: Saskatchewan and Alberta. The Saskatchewan division has three plants and the Alberta division has one central plant. Portable PC device manufacturing is a mass production industry, with high volumes of identical or similar products manufactured using assembly lines. Successful portable PC device manufacturers turn over their inventory quickly due to the rapid pace of technology changes. Products are generally made to order for customers — either other electronics companies, which then place their own brand on the units and resell them, or large national electronics retail chains, which place their store brand on the units and resell them. Each division is responsible for developing its own customer base, meeting sales targets, and managing costs. Performance Management — Practice Case 7 Case 3 / 4 Appendix I (continued) Background information The manufacturing of portable PC devices is still a relatively labour-intensive process because many of the components need to be assembled precisely. Although the Saskatchewan division manufactures wafer chips in one of its plants, most of the electronic components used in BIM’s manufacturing process are bought from third-party suppliers. The employees who assemble the components are mainly semi-skilled and have been trained by BIM to perform fairly simple, repetitive operations on the assembly line. When the units are completed, the quality assurance department tests them, and any units that are found to be faulty are returned to the assembly line and reworked. Because quality is key, all electronic components received from suppliers are also tested by BIM’s quality assurance department. They do not have the time to test every component; therefore, they test a sample of components from each batch delivered. If they find more than one faulty component in every 20 tested, the whole batch is rejected and returned to the supplier. To maintain assembly line equipment in peak performance, division managers must carefully maintain maintenance schedules and are responsible for determining and budgeting for capital expenditure needs. The Saskatchewan division manufactures the wafer chips needed in many of the Alberta division’s products. The corporate policy of BIM’s previous executive team was for the Saskatchewan division to sell the wafer chips to the Alberta division at $10 per chip (Saskatchewan division’s average production cost). The external market price for this type of wafer chip averaged $20 per chip in 2021. The Saskatchewan division is currently manufacturing wafer chips at capacity, and if it did not have to supply the Alberta division’s operations, it could have sold all 330,000 chips delivered to the Alberta division to external companies in 2021. BIM’s effective corporate tax rate is 11%. Performance Management — Practice Case 7 Case 4 / 4 Appendix II 2021 Manufacturing divisional performance Saskatchewan Alberta Financial information 2021 Actual (in ’000s) 2021 Budget (in ’000s) 2021 Actual (in ’000s) 2021 Budget (in ’000s) Sales of mobile PC products $355,200 $380,835 $188,000 $181,925 Total production costs $116,100 $116,835 $59,300 $61,200 Net operating profit after tax $130,400 $158,000 $74,300 $76,450 Total assets (average) $1,094,000 $1,020,400 $423,500 $412,780 Finished goods, raw materials, and WIP inventories (average) $30,400 $17,900 $10,020 $9,385 Saskatchewan Alberta Other information 2021 Actual 2021 Budget 2021 Actual 2021 Budget Sales (in units) 649,000 651,000 367,000 365,000 Average sales price per portable PC unit $547/unit $585/unit $512/unit $498/unit New portable PC products developed and tested 12 10 — — New portable PC products successfully brought to market 2 5 3 3 % of purchases from supplier rejected 4.8% 3.0% 2.8% 3.0% Number of employees (average) 452 426 251 246 Employee absenteeism (% of total working days) 2.0% 2.1% 1.9% 2.1% Employee turnover 10.3% 5.1% 5.6% 5.1% Annual customer survey — “value for money” (5 = Excellent) 3.4 4 4.2 4 Number of warranty claims by customers (per 1,000 units sold) 56 30 25 30
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Answered 2 days AfterSep 06, 2022

Answer To: Chartered Professional Accountants of Canada, CPA Canada, CPA are trademarks and/or certification...

Sandeep answered on Sep 08 2022
81 Votes
Performance Management         2
PERFORMANCE MANAGEMENT
A responsibility centre is defined as any SBU, Business unit, or functional entity within a business that has its own goals, mission and objectives, devoted staff, policies, procedures, and financial management reports. The concept of a Responsibility centre is meant to entrust the manager of the SBU or division with accountability or responsibility of delivering the projected revenue targets, managing cost control, and wisely investing the funds available. A responsibility centre is also an operational unit or independent unit to which resources are allocated via budgets making it accountable for all activities and tasks structured for the unit. In other any unit to which resources are allocated the Organization demand to know, how it intends to utilize or invest it for earning ROI and revenue stream cash flows.
The responsibility centre can be categorized bearing in mind two essential factors. These are the scope of accountability assigned and decision-making authority given to the unit head/ Divisional managers. There are four types of responsibility centres:
· Cost or Expense centre
· Revenue centres
· Profit centre
· Investment centre
Expense centre – It is the segment and division of an entity in which the managers will be held accountable for all costs incurred in that business segment or unit, but not usually responsible for the revenue of that unit. In a manufacturing organization, the production and services departments are classed as expense centres, whereas the marketing sales region or sales representative may be counted as expense centres. Such cost centre managers are responsible for costs controllable by them. Further, there are two types of expense centres as
· Engineered expense centre – defined as an element of cost that can be predicted with a fair degree of precision e.g., cost of raw materials, direct labour, water, electricity, etc.
· Discretionary expense centres – Costs whose output cannot be measured in monetary terms e.g., administrative and support departments/ functions within an organization like Finance, legal, R&D, PR, etc.
Revenue Centre – It is that segment of the organization that is primarily responsible for generating or earning sales revenue. Such a division manager has control over the expense of the marketing department, but he has no control over the costs. The performance of the revenue managers will be assessed by comparing the actual revenue with the budgeted or projected revenue and actual marketing expense with projected expenses.
Profit centre – It is defined as that part of the business division or segment which is responsible both for revenue and expense. However, in the not-for-profit organization where profit is termed as a sin, revenue centres may be employed in place of a profit centre to avoid being labelled as profit-driven organization. The main objective or goal of a profit centre is to earn maximum targeted profit for its investors. Their entire resources or efforts are attuned to finding ways to enhance division revenue by scaling up production facilities or improving distribution methods. The performance of the profit centre manager is measured in terms of whether the centre has achieved the budgeted or Targeted profit.
Investment centre – This segment of the business is accountable for the profits and investment. If the centre manager controls investment, that area of responsibility can be called an investment centre. Such a manager will be responsible for the Return on Investment, thereby controlling investment in the assets.
As has been indicated that BIM is highly sophisticated in manufacturing portable PC devices, such as laptops. BIM employs seven hundred individuals. As clearly mentioned in the passage Portable PC device manufacturing Is a mass production industry, selling a high volume of identical or similar characteristics products produced using assembly lines. Successful Portable PC device manufacturer turns over their inventory quickly due to the rapid pace of technology changes. Products are usually made to order or customized for customers or other electronic companies which then place their own label/Brandon on the units and resell them or a large national retail chain places their store brand on the units and resells them. Such an industry is characterized by the Saskatchewan division manufacturing wafer chips that it uses in its products and provides wafer chips to the Alberta division for its production needs. Each division is responsible for developing its customer base, meeting sales targets, and managing costs. The responsibility accounting implies that the divisional manager should be held responsible for all those items or activities that they are entrusted with or can control.
Basis the description of the activities handled by each division it is clear that the Saskatchewan division manufactures the wafer chips needed in many of the Alberta division’s products and hence it can be classified as a Profit Responsibility centre. Since it is mentioned here that each division is responsible for developing its customer base, meeting sales targets, and managing costs.
While the Alberta division can be described as a “Cost/Expense responsibility centre” which can be further classified as an “Engineered expense centre.”
Saskatchewan division is engaged manufactures wafer chips in one of its plants, most of the electronic components used in BIM’s manufacturing process are bought from third-party suppliers. The employees who assemble the components are semi-skilled and have been trained by BIM to perform simple, repetitive operations on the assembly line. When the units are completed, the quality assurance department tests them, and any units that are found to be faulty are returned to the assembly line and reworked. Because quality is key, all electronic components received from suppliers are also tested by BIM’s quality assurance department. They do not have the time to test every component; therefore, they test a sample of components from each batch delivered. If they find more than one faulty component in every twenty tested, the whole batch is rejected and returned to the supplier. When we classify the company as a profit centre it does not necessarily mean that it will not have one or more expense responsibility centres. Whereas if any division/SBU/company has more than one profit centre, each profit centre will respectively one or more expense responsibility centres as well. Additionally, it may also have a corporate responsibility centre to which all expenses, which is not incurred especially for-profit centre may be charged.
The relevant financial measure to assess the performance of the divisions will be as follows:
NPAT variance – This is...
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