Zeros Plc Essay

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Zeros plc FALCONER MITCHELL, University of Edinburgh ------------------------------------------------- The board of Zeros plc assesses divisional performance within the company primarily on the basis of a return on investment ratio. This is computed as follows: The figure of operating profit is obtained from a standard costing-based profit statement (see Exhibit I for the two most recent such statements). The Blank Division In terms of turnover, the Blank Division is the second largest division within the company. The divisional manager is Joe Cool who has worked in the division for over 30 years, initially as a management accountant and then as manager from 1976. He is 63 years old and will retire in eighteen months' time. In accordance with a board policy introduced to improve motivation at divisional level, his current remuneration contains a substantial bonus element based on divisional operating profit. In addition, his retirement pension will be based upon his average total earnings in his last three working years. The Blank Division is situated in a town-centre freehold site which was purchased in 1974. A custom-built factory was erected on the site with considerable financial aid from the government, and was equipped with what were, at the time, the most modern machines available. It is a matter of considerable pride to Joe that much of this equipment has been conscientiously maintained and is still in use today. In the accounting records the freehold site and factory building are still valued at historic cost. The Blank Division produces a wide range of sizes of surgical needles. Although all are sold at a standard price (see Exhibit 2). Although the market is growing the competition is intense, being based on both price and, particularly, product quality. Standard costs are revised at the start of each financial year (see Exhibit 2)

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