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Define Responsibility Accounting

It is a people-oriented system of accounting that traces revenues and costs to organizational units and individuals
with related responsibilities. It is an underlying concept of accounting performance measurement system. The
basic idea is that a large diversified company is difficult, if not impossible to manage as a single segment, thus
they must be decentralized or separated into manageable parts called segments or responsibility centers. It
provides a way to manage an organization that would otherwise be unmanageable. It is an essential part of any
effective system of budgetary control. As an accounting and information reporting system, it must be implemented
to provide top management w/ information about the overall accountability of the sub-units known as
Responsibility Accounting System which is an important tool in making decentralization work effectively.

Robert Anthony defines it as a type of management accounting which collects and reports both planned and
actual accounting information in terms of responsibility centers.

Charles Horngren defines it as a system that recognizes various decision or responsibility centers throughout the
organization and traces costs to individual managers who are primarily responsible for making decisions about
the costs in question.

Objectives of Responsibility Accounting

To accumulate revenues and costs according to areas of responsibility in order that deviations from standard can
be identified with the person or group responsible. Through responsibility accounting, managers will be
compelled to set managerial targets and formulate strategies to attain the firm's overall objectives. Control
mechanism will be provided which will serve as the basis in evaluating actual results of performance. As the
segment’s performance measurement device, it will help determine the segment’s contribution to the overall profit
of the company. It aims to motivate the manager to operate his segment in a manner consistent with the basic
goals of the company as a whole. It therefore influence the way the managers behave.

Responsibility reporting has two(2) purposes:

 To determine the degree of performance in the area of responsibility; and

 To formulate measures to improve the performance of the segment’s manager.
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The responsibility reporting should be suitable and relevant with respect to content, frequency of reporting and
level of details required. In order to provide relevant contents in the report, only those items that are controlled by
the particular segment manager should be reported. Frequency of reporting and the quantum of details in the
report can be decided in terms of requirements.

Three (3) Types of Responsibility Accounting Systems(RAS)

1. Functional-Based RAS
 Assigns responsibility to organizational units and expresses performance measures in financial terms.
 Uses financial outcome measures and static standards and benchmarks to evaluate performance.
Budgeting and standard costing are the cornerstones of the benchmark activity for a functional-based
system.
 Works best for organizations operating in relatively stable environments.
 Emphasizes status quo and organizational stability

2. Activity-Based RAS
 Assigns responsibility to processes and uses both financial & non-financial performance measures.
 Uses both operational(process perspective) and financial performance measures as well as dynamic
standards.
 Works best for firms operating in continuous improvement environments.
 Emphasizes and supports continuous improvement

3. Strategic-Based RAS (Balanced Scorecard)

 Expands the number of responsibility dimensions from 2 to 4 (financial, process, customer, learning &
growth perspectives)
 Uses performance measures that become an integrated set of measures linked to an organization’s
mission and strategy
 Works best for firms operating in dynamic environments just like the activity-based responsibility
accounting system

Concept of Responsibility Accounting

The basic idea behind responsibility accounting is that managers should be held responsible only for revenues
and costs they can control. Sub-units (may be a department, a subsidiary or a division) sometimes referred to as
responsibility centers are defined as organizational units responsible for the generation of revenues and/or the
incurrence of costs. Responsibility accounting requires that costs be classified by responsibility centers and by
degree of control within each responsibility center (whether it is controllable or non-controllable) An important step
in establishing an effective responsibility accounting system is to determine the range of authority and influence
the manager is permitted to have control over revenues, costs and investment. All costs are controllable to some
degree and by somebody over the long-run. Controllability is a matter of degree affected by the managerial area
of responsibility and the time period in question. The reporting of costs and revenues under responsibility
accounting differs from budgeting in terms of:
1). distinction made between controllable and non-controllable costs;
2). performance reports either emphasize or include only items controllable by the individual manager.

Four (4) Essential Elements of a Responsibility Accounting Model:

1. Assigning responsibility 3. Evaluating Performance
2. Establishing Performance Measures or Benchmarks 4. Assigning Rewards

Significance of Responsibility Accounting

1. It enables the identification of individual managers responsible for satisfactory or unsatisfactory performance.
2. If responsibility accounting system is implemented, considerable motivational benefits are assured.
3. A mechanism for presenting performance data is provided. A framework of managerial performance appraisal
system can be established on that basis, besides motivating managers to act for the best interests of the
company.
4. Relevant and timely information is made available which can be used to estimate future costs and/or revenues
and to fix up standards for departmental budgets.
5. It helps not only in control but also in planning and decision making.
6. The twin objectives of management are delegating responsibility while retaining control are achieved by
adoption of responsibility accounting system.
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Problems in Responsibility Accounting

While implementing the responsibility accounting system, the ff. difficulties are likely to be faced by management:
1. Classification between controllable and non-controllable costs.
2. Inter-departmental conflicts. - Separate departmental pursuits may lead to inter-departmental rivalry and it
may be prejudicial to the interest of the company as a whole. Managers may act in the best interests of his
own segment rather than that of the whole company.
3. Responsibility reports may be delayed. Each responsibility center can take its own time in preparing reports.
4. Overloading of information contained in the segmented reports.
5. Complete reliance will be deceptive. Responsibility accounting cannot be relied upon completely as a tool of
management control. It is a system just to direct the attention of management to those areas of performance
which required further investigation.

Characteristics of Responsibility Reports:

(1) Reports should fit the organization chart, that is, the report should be addressed to the individual responsible
for the items covered by it, who, in turn will be able to control those costs under his jurisdiction. Managers
must be educated to use the results of the reporting system.

(2) Report should be prompt and timely. Prompt issuance of a report requires that cost records be organised so
that information is available when it is needed.

(3) Reports should be issued with regularity. Promptness and regularity are closely tied up with the mechanical
aids used to assemble and issue reports.

(4) Reports should be easy to understand. Often they contain accounting terminology that managers with little or
no accounting training find difficult to understand, and vital information may be incorrectly communicated.
Therefore, accounting terms should be explained or modified to fit the user. Top management should have
some knowledge of the kind of items chargeable to an account as well as the methods used to compute
overhead rates, make cost allocations and analyse variances.

(5) Reports should convey sufficient but not excessive details. The amount and nature of the details depend
largely on the management level receiving the report. Reports to management should neither be flooded with
immaterial facts or so condensed that management lacks vital information essential to carrying out its
responsibilities.

(6) Reports should give comparative figures, ie., a comparison of actual with budgeted figures or of
predetermined standards with actual results and the isolation of variances.

(7) Reports should be analytical. Analysis of underlying papers, such as time tickets, scrap tickets, work orders,
and materials requisitions, provide reasons for poor performance which might have been due to power failure,
machine breakdown, an inefficient operator, poor quality of materials, or many other similar factors.

(8) Reports for operating management should, if possible, be stated in physical units as well as in terms of
money since monetary information may give a foreman not trained in the language of the accountant a certain
amount of difficulty.

(9) Reports may tend to highlight departmental efficiencies and inefficiencies, results achieved, future goals or
targets.

Responsibility reports help each successively higher level of management in evaluating the performance of
subordinate managers and their respective organisation units. The reports should be tailored to fit the planning,
controlling and decision making needs of subordinate managers and should include both monetary and non-
monetary information.

4 Major Types of Responsibility Centers

COST CENTER - is a subunit that has responsibility for controlling costs but does not have responsibility of
generating revenue. Most service departments belong to this category. Production
departments are also classified as cost centers if its manager has little input into how the
product will be marketed and what price will be charged.

A common approach to controlling cost centers is to compare their actual costs with
standard or budgeted costs as reflected in the Cost Performance Report (see exhibit A). If
variances from standard are significant, an investigation should be undertaken to
determine if costs are out of control or, alternatively, if cost standards need to be revised.
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REVENUE CENTER - is a subunit in which a manager is responsible only for sales. The marketing department
may be evaluated as a revenue center. Direct costs of the marketing department and
overall sales are the responsibility of the sales manager.

PROFIT CENTER - is a subunit that has responsibility for generating revenue as well as for controlling costs.
The performance of the profit center can be evaluated in terms of profitability. Income
earned in the current year may be compared with the target or its budgeted amount. It
may also be compared with the income earned in the prior year. Relative performance
evaluation of profit centers involves evaluating the profitability of each profit center relative
to the profitability of other, similar profit centers.

INVESTMENT CENTER - is a subunit that is responsible for generating revenue, controlling costs, and investing
in assets. It is charged with earning income consistent with the amount of assets invested
in the segment. Most divisions of a company can be treated as either profit center or
investment center. If the division manager can significantly influence decisions affecting
investment in divisional assets, the division should be considered an investment center. If
he cannot influence investment decisions, then it should be considered as a profit center.
Investment center head play a major role in determining the level of inventory, the level of
accounts receivable and the investment in equipment and other assets held by the
investment center. Tools used for evaluating the performance of an investment center
include the return on investment (ROI) and residual income (RI).

The setup of responsibility centers is unique to each firm. Such factors as size, industry, operating characteristics
and managerial philosophy influence the organizational structure of the firm. The way that the firm is organized,
influences its reporting system. In a responsibility accounting program, the following principles of good
organization must be followed:
1. Every necessary function is assigned to a unit of the organization.
2. The assignment of responsibilities is specific and understood.
3. Overlapping of responsibilities must not exist.
4. Each position in an organization report to one and only one supervisor.
5. A supervisory position over each logical grouping (either geographic or functional) or activities at each
management level must be assigned.

DECENTRALIZATION

Firms with multiple responsibility centers usually choose 1 of 2 management approaches:

* Centralized decision making in which decisions are made at the very top level and lower-level managers are
charged with implementing these decisions.

* Decentralized decision making allows managers at lower levels to make and implement key decisions pertaining
to their areas of responsibility.

When the majority of authority is retained by top management, centralization exists. Decentralization refers to top
management's downward delegation of decision-making authority to sub-unit managers. The responsibility for the
ultimate effects of those decisions is retained by top management. Each subunit would act as a totally
independent entity. However, decentralization does not necessarily mean that a unit manager has the authority to
make all decisions concerning that unit. Top management selectively determines the types of authority to
delegate and the types to withhold.

Advantages of Decentralization
 Helps top management recognize and develop managerial talent
 Allows managerial performance to be comparatively evaluated
 Can often lead to greater job satisfaction
 Makes the accomplishment of organizational goals and objectives easier
 Allows the use of management by exception

Disadvantages of Decentralization
 May result in a lack of goal congruence or suboptimization
 Requires more effective communication abilities
 May create personnel difficulties upon introduction
 Can be extremely expensive

In a decentralized firm, top management delegates decision-making authority but retains ultimate responsibility for
decision outcomes.
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Reasons for decentralization:

1. Better access to local information - Lower-level managers who are in contact with immediate operating
conditions have better access to local information. That's why they are in a better position
to make decisions.

2. Cognitive limitations - means that individuals with specialized skills would still be needed and in this way, the
firm can avoid the cost and bother of collecting and transmitting local information to
headquarters. This is seen as crucial in today's downsized environment.

3. More timely response - Time is needed to transmit the local information to headquarters and to transmit the
decision back to the local unit which may cause delay and increase the potential for
miscommunication, thus, decreasing the effectiveness of the response. However, this
problem does not rise in a decentralized firm.

4. Focusing of Central Management - By decentralizing the operating decisions, central management is free to
focus on strategic planning and decision making. The long-run survival of the firm should
be of more importance to central management than its day to day operations.

5. Training and Evaluation - This is the better way to prepare a future generation of higher-level managers, that is
by providing them the opportunity to make significant decisions. These opportunities will
enable top managers to evaluate the local manager's capabilities.

6. Motivation - By giving local managers freedom to make decisions, their self-esteem and self-actualization are
being met. Greater responsibility can produce more job satisfaction and motivate the local
manager to exert greater effort. More initiative and more creativity can be expected.

7. Enhanced Competition - A decentralized approach allows the company to determine each division's
contribution to profit and to express to market forces.

Reasons why companies will conduct performance evaluation:

 To identify successful operations and areas needing improvement;
 To motivate subunit managers to take actions that maximize the value of the firm.

Management by Exception

It means that top management's review of a budget report is directed either entirely or primarily to differences
between actual results and planned objectives. This approach enables top management to focus on problem
areas that need attention. Management by exception does not mean that top management will investigate every
difference. For this approach to be effective, there must be some guidelines for identifying an exception. The
usual criteria are MATERIALITY and CONTROLLABILITY of the item. Materiality is usually expressed as a
percentage difference from the budget. For example, management may set the percentage difference at 5% for
important items and 10% for other items. This means that all differences either over or under budget by the
specified percentage will be investigated.

Alternatively, a company may specify a single percentage difference from the budget for all items and supplement
this guideline with a minimum peso limit.
Exhibit A
Variance Analysis Report or Cost Performance Report
Variance
(Favorable)
Actual Budget Unfavorable
Direct Costs:
Controllable P xxxx P xxxx P xxxx
Uncontrollable xxxx xxxx xxxx
Indirect Cost allocated to department xxxx xxxx xxxx
Total P xxxx P xxxx P xxxx
======= ====== =======
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Exhibit B
Profitability Analysis

Net Sales P xxx

Less: Direct Cost and Expenses
Cost of Product P xxx
Sales Commission xxx xxx
Contribution to Indirect Expenses P xxx
=====
Exhibit C
Profitability Analysis
(Multi-Divisions)

DI VISION
A B C Total

Revenues P xxx P xxx P xxx P xxx

Less: Direct costs xxx xxx xxx xxx
Contribution to Indirect Costs P xxx P xxx P xxx P xxx
Less: Allocated Company Costs xxx xxx xxx xxx
Net Income (Loss) P xxx P xxx P xxx P xxx
===== ===== ===== =====
In calculating ROI, companies measure income in a variety of ways (net income, income before interest and taxes,
controllable profit, etc.) Consistent with the practice of many companies, we'll measure investment center income
as Net Operating Profit After Taxes (NOPAT). For example:
Sales ...................................................P 40,000,000
-CGS 25,000,000
Gross Margin P 15,000,000
-Selling and Administrative Expenses 8,000,000
Income from Operations P 7,000,000
-Interest Expense 1,000,000
Income before Tax P 6,000,000
-Income tax @32% 1,920,000
Net Income P 4,080,000
============

Net Income P 4,080,000

+ Interest Expense net of tax 680,000
NOPAT P 4,760,000
==========
Book Value of Total Assets P 70,000,000 ROI=NOPAT/invested capital = .0732 or 7.32%
Less: Non-interest bearing current liabilities 5,000,000
Invested Capital P 65,000,000
===========
A benefit of using NOPAT is that it does not hold the investment center manager responsible for interest expense.
This is appropriate because investment center managers frequently do not have responsibility for decisions
related to financing their operations. Non-interest bearing current liabilities (like accounts payable, income tax
payable, accrued liabilities, etc.) are deducted from the total assets because they are a "free" source of funds and
reduce the cost of the investment in assets.

Investment Center Controllable Margin Operating Income

ROI= ------------------------------------------------------ or -----------------------
Ave. Investment Center`s Operating Assets Total Assets

Operating Assets include Cash, Accounts Receivable, Inventory and all other assets held for productive use in the
firm. They do not include investments in other companies and investments in undeveloped land. Assets common
to all divisions (such as assets associated with corporate headquarters) should not be allocated to the divisions
when making ROI computations.

The manager of an investment center can improve the ROI in two(2) ways:
1. Increase controllable margin and/or 2. Reduce average operating assets.
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Controllable Margin can be increased by:

1. Increasing sales or 2. Reducing variable and controllable fixed costs

Controllable Margin or Performance Margin A subtotal in a responsibility income statement designed to assist
in evaluating the performance of a manager based solely on revenues and expenses under the manager’s
control. It is the contribution margin less the controllable fixed costs used to monitor and measure the
contribution made by a profit center.

Responsibility Margin Revenue less variable costs and traceable fixed costs. A long-run measure of the
profitability of a profit center. Consists of the revenue and costs likely to disappear if the responsibility center were
eliminated.

Reductions in operating assets may or may not be prudent. It is beneficial to eliminate overinvestment in
inventories and to dispose excessive plant assets. However, it is unwise to reduce inventories below expected
needs or to dispose essential plant assets.

One problem with ROI is that investment in assets is typically measured using historical costs. As assets become
fully depreciated, the measure of investment becomes very low and ROI becomes high. This makes comparison
of investment centers using ROI difficult. ROI may lead managers to delay the purchase of modern equipment
needed to stay competitive as this will raise the level of investment and reduce ROI. If managers are evaluated in
terms of ROI, they may fear that the decline in ROI will lead to low job performance rating. They may not be
motivated to invest in projects with positive NPV. This is because in the short run, projects with positive NPV may
have low levels of income and low ROIs. They will be quite concerned about how ROI will be affected by
additional investments. Manager of investment centers with high ROI may be unwilling to invest in assets that will
earn a return that is satisfactory to central management if that return is less than their current, high ROI. That is,
managers may underinvest. This problem can be minimized by evaluating managers using Residual Income.

RESIDUAL INCOME

The use of residual income has been proposed as an alternative to ROI. Residual Income is defined as the
operating profit of a division less an imputed charge for the operating capital used by the division. It is the income
a division produces in excess of the minimum required (desired target) rate of return. Top management
establishes the minimum rate of return which should be greater than cost of capital. It is computed as follows:

RI = income - (investment x target ROI) Or Residual Income = NOPAT - (Cost of Capital x Investment)
Or = Operating Income - Minimum Required Return

Residual Income is the excess of actual operating income over the targeted income. It encourages investment in
worthwhile projects that would be rejected under ROI. As residual income increases, ROI frequently decreases.
The most basic argument for using RI, in preference to ROI, for evaluating divisional performance is that RI
explicitly recognizes the critical point that the capital invested in any division comes with a cost. When the
minimum ROI approximates cost of capital or the cutoff rate (pretax) for the co. as a whole, RI measures the profit
that the division provides to the co. over & above the minimum profit required for the amount invested.

Example:
Division A produces a P200,000 income on an investment of P1,000,000, an ROI of 20% while Division B earns
P1,500,000 on an investment of P10,000,000, an ROI of 15%. Depending on the required ROI for the company,
the contributions of the divisions to the co. as a whole will appear quite different. Consider two possibilities:
Required ROI is 10% Required ROI is 18%
Div. A Div. B Div. A Div. B
Investment P 1M P 10M P 1M P 10M
Divisional income P200,000 P1,500,000 P 200,000 P 1,500,000
-Required min. return on
(investment x min.ROI) 100,000 1,000,000 180,000 1,800,000
Residual income P 100,000 P 500,000 P 20,000 (P 300,000)
======== ========= ======== =========
Division’s ROI = 200,000 or 20% = 1.5 M or 15%
1M 10 M

ROI vs. Residual Income

Using ROI to evaluate divisions can encourage the divisions to reject good investments & accept poor
investments. Consider the manager of Division Q who expects P300,000 income on a P1M investment for a 30%
expected ROI. The manager has an opportunity offering a P75,000 incremental profit on an incremental
investment of P300,000. Assume further that the company's minimum rate of return is 20%. From the company's
viewpoint, the proposed investment should be undertaken because its 25% expected ROI exceeds the 20%
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required minimum. But if the performance of the division (and its manager) is evaluated on the basis of ROI, the
manager will be inclined to reject the new investment because ROI (now 30%) will fall. A division manager
evaluated on the basis of RI will undertake this project because performance improves. The ROI criterion
encourages maximizing the ratio of profit to investment while the RI criterion encourages maximizing total peso of
profit in excess of the minimum required peso return.

Accepting Value-Losing Opportunities

Supposing the manager of Divison Z expects income of P200,000 on an investment of P2M (so ROI is 10%). How
would the manager respond to an opportunity to increase income by P15,000 for an additional investment of
P100,000?
200,000 + 15,000
New ROI = -------------------------------- = 10.2%
2,000,000 + 100,000 =====
The investment is unwise for the company because it earns less than the 20% minimum (15,000/100,000 = 15%
of AI). But the manager will accept the investment because divisional ROI increases to 10.2%.
New divisional profit P 215,000 P200,000
- Required minimum profit
20% x 2,100,000 420,000 400,000
Negative Residual Income (P 205,000) (P 200,000)
========== ========
A manager evaluated on RI will reject the investment because the already negative RI of P200,000 grows to
P 205,000 if the investment proposal is accepted. In most companies, Division Z would not be able to make the
undesirable investment because capital budgeting proposals will require top management approval.

EVA (Economic Value Added)

EVA is a measure of profitability and an excellent performance measure for a company as a whole. The concepts
of EVA and RI are very similar. EVA uses after-tax operating profit which is RI's divisional profit less income
tax. EVA also uses cost of capital(COC) as the target ROI, while RI uses a pretax target return that is also
higher than COC. Suppose that the company has a composite COC of 11% and a 32% income tax rate.
Divisional profit P 200,000
Less income tax at 32% 64,000
After-tax profit P 136,000
Less Weighted Ave. COC = P1M x 11% = 110,000 or the Required Minimum Return
EVA P 26,000
=========
The EVA concept recognizes that companies create wealth only when they generate returns above their cost of
capital. If EVA is positive, the company is creating wealth. If it is negative, then the company is destroying capital.
Over the long-term, only those companies creating capital, or wealth, can survive.

Problem A: Ace Electronics has P100,000 in operating capital which consists of P50,000 of 10% Long-term Debt
and P50,000 of common equity. The company has no preferred stock nor notes payable. Income tax
rate is 40%. On the basis of their assessment of the company’s risk, shareholders require a 14%
return and this is what shareholders could expect to get if they were to take their money elsewhere
and invest in stocks that have the same risk as Ace.

LtD 10% (60%) = 6% x 50% = 3%

SE 14% x 50% = 7%
10% as WACC x P100,000 = P10,000 TC of Capital per year

If OP or EBIT ……………………………P 20,000

Less Interest Expense 10% x 50,000 = 5,000
Taxable Income P 15,000
X % net of tax x 60%_
NIAT ………………………………….. P 9,000 ROE = NI / CSE = 9,000 / 50,000 = 18%
=======
EVA = EBIT (1 – ITR) – (Operating Capital x After-tax % of COC)
= P 20,000 (60%) – (P 100,000 x 10%)
= P 2,000 w/c indicates that Ace provided its shareholders with P2,000 more than they could have earned
elsewhere by investing in other stocks with the same risk as Ace’s stock.
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The firm generates P 20,000 in Operating Profit

(6,000) goes to the government as payment for taxes
(5,000) goes to the bondholders in the form of interest payments
P 9,000 Balance
(7,000) is what Ace’s shareholders expected to earn (14% X P 50,000) and it is the amount
the firm must earn if it is to avoid reducing shareholder’s wealth.
P 2,000 is the leftover. In this case, Ace’s management created wealth because it provided
shareholders with a return greater than what they would have earned on alternative
investments.

Problem B : Dorman Corp. has been in business for 6 years. The CEO is pleased with the firm's profit picture. It
pays taxes at the rate of 32%. Data for the past year are as follows:
Net income P 250,000
Total Capital employed 1,060,000
9% Long-term debt 100,000
Stockholders' Equity 900,000
1. Calculate the weighted average cost of capital, assuming that stockholders' equity is valued at the average cost
of common stock of 12%. Calculate the total cost of capital for Dorman Corp. last year.
2. Calculate EVA for Dorman Corp.

1. LtD P 100,000 10% x 6.12% = .00612

SE 900,000 90% x 12% = .108__
P1,000,000 .11412 as Weighted Ave. Cost of Capital

Cost of Capital last year = .11412 x P1,060,000 = P 120,967.20

2. Net Income P 250,000

Less Cost of Capital 120,967.20
EVA P 129,032.80
==========
Problem C: The following data are from the Courier Division of Global Delivery Company:
Revenue from deliveries P 50,000
Division variable cost 32,500
Allocated home office overhead 4,600
Fixed overhead traceable to division
(P4,500 is controllable & P8,000 is non-controllable) 12,500
Calculate the division variable CM, division controllable CM, division direct CM, and division net profit.

Solution:
Revenue from Deliveries ………………………………….P 50,000
Less Direct Costs:
Variable Costs ………………………………………… (32,500)
Division Variable CM ……………………………………….P 17,500
Less Fixed Controllable Costs …………………………… (4,500)
Division Controllable CM …………………………………. P 13,000
Less Fixed Non-Controllable Costs……………………… (8,000)
Division Direct CM …………………………………………. P 5,000
Less Indirect Cost:
Allocated Home Office Overhead (4,600)
Division Net Profit …………………………………………. P 400
=======
Problem D: Selected data for Yamashita Company's Gera Division:
Sales..........................P1,000,000 Average invested capital....... 200,000
Variable Costs............... 600,000 Imputed interest rate.......... 15%
Traceable fixed costs.....100,000
How much is the residual income? What is their ROI?
Solution:
Sales ……………………………. P1,000,000
Less Variable Costs (600,000)
Traceable FC (100,000)
Net Income P 300,000 / P 200,000 = 150% as ROI
Less Minimum ROI in Pesos:
P 200,000 x 15% = 30,000
Residual Income P 270,000
==========