Exam 14: Business Unit Performance Measurement

Last year a company had stockholders' equity of $160,000,net operating income of $16,000,and sales of $100,000.The turnover was 0.5.The return on investment (ROI)was:

The Parts Division of the Stein Corporation had average operating assets of $150,000 and net operating income of $27,800 in March.The company uses residual income to evaluate the performance of its divisions,with a minimum required rate of return of 17%.Required: What was the Parts Division's residual income in March?

What are two disadvantages of using divisional income as a performance measure?

One problem associated with using accounting measures to evaluate divisional performance is the measures are based on historical information.