Question

QUESTION TWO Golf Ltd. is a manufacturing entity located in Hobart. The company has three main divisions: The Golf Club Division, the Golf Balls division, and the Clothing and Shoes division. The Golf Club division’ profit has been increasing over the past 10 years. The division has recently implemented several advanced manufacturing techniques. Robotic technology plus scanners test for defects, and the engineering and design team use computers to draft and test new products.

The following managers work in the Golf Club division:

• Angela, sales manager and head of the Sales office (supervises all sales representatives)

• Carl, technical specialist and head of the IT office (supervises computer programmers)

• Jenny, management accounting manager and head of the Administration office (supervise management accountants)

• Garry, production manager and head of the Production department (supervises all manufacturing employees)

• Rachel, engineer and head of the Research and Development office (supervises all new product design teams).

The Golf Club division reported the following results from 2015’s operations.

Sales revenue $ 1,000,000 Variable costs 300,000 Fixed costs 500,000 Total assets 625,000

REQUIRED:

(a) Does Golf Ltd. use a market-based or functional organizational structure at the division level? Use the information provided in the case to justify your answer. (2.5 Marks) ACCT 1014 Final Examination (MEL), Semester 1, 2020 Page4/6 RMIT Classification: Trusted

(b) Specify how you would treat each of the following subunits of the Golf Club division from a responsibility accounting point of view: Sales office, IT office, Administration office, Production department and Research and Development office. (2.5 Marks)

(c) Elizabeth - the manager of the Golf Club division - has a $120,000 investment opportunity (a new defect detecting system) with the following characteristics.

Expected savings from defects reduction $200,000 Expected additional variable costs $80,000 Expected additional fixed costs $90,000

If the manager of the golf club division earns a bonus only if the ROI from this year exceeds the ROI from the prior year, would she pursue the investment opportunity? (Note ROI is calculated as operating income divided by total assets). Show and label calculations to support your answer and discuss your findings in terms of goal congruence.

(d) What would happen if the bonus is awarded if the manager’s residual income from this year exceeds the residual income from the last year? Consider also that Golf Ltd’s minimum required rate of return is 15%. Show and label calculations to support your answer and discuss your findings in terms of goal congruence. (2.5 + 2.5 + 4 + 4 = 13 marks)

Answer 1

a) Yes, Golf Ltd. use market based or functional organizational structure at the division level-

(i)due to the reason that functional strategies lay down clearly what is to be done at the functional level.

(ii)They provide a sense of direction to the functional staff.

(iii)They are aimed at facilitating the implementation of corporate strategies   and the business strategies formulation at the busines level.

(iv)They act as basis for controlling activities in the different functional areas of business.

(v)They help bringing harmony and coordination as they are formulated to achieve major strategies .

(vi) Similar situations occurring in different functional areas are handled in a consistent manner by the functional managers.

(vii) Thus, strategies need to be segregated into viable functional plans and policies that are compatible with each other. In this way, strategies can be implemented by the functional managers

(viii) Environmental factors relevant to each functional area have an impact on the choice of functional strategies.  

Sales and Marketing	engineering	Accounting	Production	Research and Development
Angela	Carl	Jenny	Garry	Rachel