Common short-term financial performance measures include divisional profits or segment margin, which is > calculated as
Question:
Common short-term financial performance measures include
• divisional profits or segment margin, which is
>■ calculated as segment sales minus (direct variable expenses and avoidable fixed expenses).
>- used to assess whether segmental profitabil¬ ity goals were achieved.
• cash flow (by segment or responsibility unit), which is
>- calculated as cash provided (used) from op¬ erating activities, investing activities, and (if appropriate) financing activities.
>- used to assess the ability of the responsibil¬ ity unit to be profitable, have sufficient liquidity to pay debts as they arise, adapt to adverse conditions, and undertake new commitments.
• return on investment, which is calculated as profit margin multiplied by as¬ set turnover.
»- used to assess the generation of income rel¬ ative to the resources used to producte that income.
• residual income, which is
>- calculated as income earned above a target rate on the unit’s asset base.
used to assess the generation of income rel¬ ative to the resources used to produce that income.
• economic value added, which is
>- calculated as after tax-profits above tire mar¬ ket value of capital invested multiplied by the cost of capital percentage.
used to assess the generation of income rel¬ ative to the market value of the resources used to produce that income. LO.1
Step by Step Answer:
Cost Accounting Foundations And Evolutions
ISBN: 9780324235012
6th Edition
Authors: Michael R. Kinney, Jenice Prather-Kinsey, Cecily A. Raiborn