You firm has just been hired by Toes in the Water, Inc., a manufacturer of kayaks, to provide consulting services. Toes in the Water operates two divisions: Ocean and Lake. Each divisional vice president is held responsible for both profit and invested capital. Each division consists of two branches: Sand and Clay. Each branch manager is responsible for generating revenue and controlling costs. The Ocean divisions Sand branch has two departments, Zac and Brown. Both department managers are responsible for controlling costs.

You asked a staff member to provide a list of the performance evaulation tools they would suggest using to evaluate the Sand and Clay branches. They provided the following list:

budget versus actual report

segmented income statement

return on investment

Do you agree with the staff member's list? Why or why not?

A.

Yes. The tools listed are comprehensive and consider each branch's revenue, expenses, and assets.

B.

No. None of the tools listed consider the company's target rate of return.

C.

No. Return on investment should not be used because the branches are considered profit centers.

D.

Yes. All of the tools listed are valid performance evlaulation tools for the branches.

E.

No. Residual income should be used in conjunction with return on investment to evaluate the branches.