Responsibility Accounting and Performance Measures Paper 18

The selection of the denominator in the return-on-investment (ROI) formula is critical to the measureâ€™s effectiveness. Which denominator is criticized because it combines the effects of operating decisions made at one level of the organization with financing decisions made at another organizational level?

Total assets employed.
Working capital.
Total assets available
Shareholdersâ€™ equityDetailed Answer

Return-on-investment (ROI) is a term often used to express income earned on capital invested in a business unit. A companyâ€™s ROI will increase if:

Sales increase by the same dollar amount as expenses and total assets increase.
Sales remain the same and expenses are reduced by the same dollar amount that total assets increase.Detailed Answer
Sales decrease by the same dollar amount that expenses increase.
Sales and expenses increase by the same percentage that total assets increase.

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Responsibility Accounting and Performance Measures Paper 18

Return-on-investment (ROI) is a term often used to express income earned on capital invested in a business unit. A companyâ€™s ROI will increase if:

Result