COST ACCOUNTING
PERFORMANCE MEASUREMENT
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
to determine the contribution that a division makes to the total organisation
|
|
|
to provide a basis for evaluating the quality of the divisional manager’s performance
|
|
|
to motivate the divisional manager to operate his division in a manner consistent with the firm’s goals
|
Detailed explanation-1: -Divisional performance measurement are effective in ensure that a strategy of organization is successfully implemented by monitor a divisions effectiveness in satisfying its own predetermined goals or stakeholder desires. Divisional performance measures may be based on non-financial as well as on financial information.
Detailed explanation-2: -Two commonly used measures of divisional performance are return on investment (ROI) and residual income (RI). Return on investment (ROI): measures operating profit as a percentage of the assets employed in the division. ROI needs to be greater than the cost of capital for a division to be profitable in the long term.
Detailed explanation-3: -The most common methods of measuring divisional performance are absolute profits, profit ex-pressed as a percentage of investment (ROI), and residual income. During the 1990s residual income was replaced by the EVA measure.
Detailed explanation-4: -The way in which the central management of an organization measures the performance of each of the individual divisions in a divisionalized structure. Methods used include return on capital employed, residual income, and profit-to-sales ratio.