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kuttin kuttin
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A month ago
You are assigned to a team responsible for evaluating segment managers' performance measures. A team member has indicated that a friend who is a manager at a competitor's company is evaluated using "ROI," but does not know what "ROI" is.

Required:

a.Explain what ROI is and why it is a useful tool in measuring managers' performance.
b.Give an example of when ROI would not be an appropriate performance
measurement.
Textbook 
Managerial Accounting

Managerial Accounting


Edition: 4th
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bryrdanbryrdan
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a.Return on investment (ROI) measures the rate of return generated by an investment in
assets. It is calculated by dividing operating income by average operating assets. It is a useful tool in measuring investment managers' performance because it includes a review of both revenue and expenses, with a focus on operating income. It also evaluates how well the assets have been used to generate revenue.

b.ROI would not be appropriate in evaluating a cost center manager's performance
because the manager has no control over revenue or how well assets are used to generate revenue.  ROI is also not appropriate for a profit center manager's performance because the manager has no control over how well the assets are used to generate revenue.

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kuttin Author
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Smart ... Thanks!
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