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Chapter 24: Q17RQ (page 1355)

What are two key performance indicators used to evaluate investment centers?

Short Answer

Expert verified

Return on investment and residual income

Step by step solution

01

Meaning of Investment center

A centre of responsibility where an administration is in charge of accomplishing a rate of return on the segment's venture in assets. Cost, income, and investments in operational assets are all inside the manager's control in an investment centre.

02

Two key performance indicators used to evaluate investment centers

Return on investment refers to the percentage return earned on the investment.

The residual income strategy measures the net income that investment makes at a cutoff determined by the investment's minimum rate of return.

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Most popular questions from this chapter

List the advantages of decentralization.

List the advantages of decentralization.

Decentralization divides company operations into various reporting units. Most decentralized subunits can be described as one of four different types of responsibility centers.

Requirements

1. Explain why companies decentralize. Describe some typical methods of decentralization.

2. List the four most common types of responsibility centers, and describe their responsibilities.

Padgett Company has compiled the following data:

Net sales revenue $1,000,000

Operating income 60,000

Average total assets 400,000

Management’s target rate of return 12%

Compute the following amounts for Padgett:

  1. Profit margin ratio
  2. Asset turnover ratio
  3. Return on investment
  4. Residual income

Refer to the data in Exercise E24-17. Calculate each division’s RI. Interpret your results.
See all solutions

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