- 8 Marks
MA – April 2022 – L2 – Q1a – Divisional performance
Evaluate whether a fitness club manager should receive a bonus based on forecasted financial performance.
Question
a) Gyakie Ltd (Gyakie) operates a chain of fitness clubs in Oti Region. Managers at the fitness clubs receive a quarterly bonus if their fitness club achieves or exceeds all of the following financial targets:
- Return on Capital Employed (ROCE): 8% (based on net assets)
- Asset turnover: 40%
- Operating profit margin: 20%
Summary of the actual performance for Quarter 3 of the current year for one of the fitness clubs in Papase is detailed below:
| Description | Amount (GH¢) |
|---|---|
| Revenue | 36,000 |
| Staff costs | 12,000 |
| Other fixed costs | 22,000 |
| Net assets | 110,000 |
| Number of customers | 600 |
The quarterly financial targets are set by the head office finance team, and all fitness clubs are given the same target. Gyakie is currently forecasting the performance of its fitness clubs in Quarter 4. The following information will be used to forecast the performance for each of its fitness clubs in Quarter 4:
- The average revenue per customer will increase by 10% on Quarter 3.
- Customer numbers will increase by 5% on Quarter 3.
- Staff costs and net assets are expected to remain at the same level as Quarter 3.
- Other fixed costs are expected to decrease by 5% on Quarter 3.
- Staff and other costs are fixed (they are not related to the number of customers).
Required: Justify whether the manager of the fitness club in Papase should receive a bonus in Quarter 4 based on the forecast performance. Your computation should include operating profit margin, ROCE, and asset turnover for Quarter 4.
Find Related Questions by Tags, levels, etc.
- Tags: Asset Turnover, Bonus Evaluation, Forecasting, Operating Profit Margin, ROCE
- Level: Level 2
- Topic: Divisional Performance
- Series: APR 2023