Lecture 19 Flashcards by Zhi Cai | Brainscape

Q

Controllable contribution

A

divisional revenue -controllable Divisional costs

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Q

CM =

A

revenue – variable costs

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Q

Divisional contribution =

A

divisional revenue – divisional costs

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Q

Divisional net profit before taxes: Includes

A

Allocated OH

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Q

Return on investment (ROI)

A

(Divisional profit/Divisional investment) x 100

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Q

Pros and Cons of ROI

A

Pros
Commonly used and understood

Can be further analysed

Used for comparative purposes.

Cons

Ignores absolute size since its a ratio

May encourage sub optiomal decisions

Incorrect asset disposal decisions

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Q

Residual income

A

£
thus: divisional profit before tax X

less cost of capital
(asset value x cost of capital) Y

Residual Income X-Y

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