ACCT 225 - Assignment 9-2

ACCT 225 - Assignment 9-2 - Question 10-3 Distinguish...

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Question 10-3 Distinguish between a cost center, a profit center, and an investment center. A cost center has control over costs but not over revenue or the use of investment funds. Whereas, the manager of a profit center has control over both costs and revenue, but not over the use of investment funds. In an investment center, the manager has has control over cost, revenue, and investments in operating assets.
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1. Compute ROI for each division. Division A ROI = $300,000/$6,000,000 Division B   ROI = $900,000/$10,000,000 Division C ROI = $180,000/$8,000,000 2 Division A Division B Average operating assets  $1,500,000  $5,000,000  Required rate of return  Required operating income  Actual operating income  Required operating income  Residual income  3 Division A Division B × 15% × 18% $ 225,000 $ 900,000 $ 300,000 $ 900,000 225,000 900,000 $ 75,000 $ 0
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20% 18% Reject Reject 15% 18% Accept Reject If performance is being measured by ROI, both Division A and Divisio
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This note was uploaded on 05/02/2008 for the course ACCT 225 taught by Professor H during the Winter '08 term at Franklin.

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ACCT 225 - Assignment 9-2 - Question 10-3 Distinguish...

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