ACCT 2120 Chapter 11

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EBIT

(NOI) earnings before interest and taxes

disadvantages of decentralization

-clashing objectives -lack of coordination -spreading of ideas may be difficult

How can a company increase its ROI

Increase selling prices reduce operating expenses increase unit sales

ROI=

NOI/Average Operating Assets

Operating assets include:

cash accounts receivable inventory plant and equipment all other assets held for operating purposes

An organization where decision making authority is spread throught the org. is....

decentralized

NOI is income before...

interest and taxes

ROI is a method used to evaluate

investment centers

residual income is used to evaluate managers of

investment centers

using net book value to calculate average operating assets is bad because...

it increases ROI overtime

in order to fully understand how a managers decisions can affect ROI they need to compute...

margin and turnover

Comparing actual net income to budgeted net income is often done to evaluate a manager in _____ center

profit

Comparing actual net income to budgeted net income is often done to evaluate the manager of a ____ center

profit

lower level managers decision making authority can be linked to the outcomes of those decisions through

responsibility accounting systems

The higher a business segment's ROI

the greater the profit earned per dollar

Managers of cost centers are evaluated according to

their ability to control costs in their responsibly center


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