Q17RQ - Horngren'S Financial And Managerial Accounting

Question

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

Step-by-Step Solution

Answer

Return on investment and residual income

Step 1: 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.

Step 2: 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.