Question

Performance is evaluated for an investment center through the comparison of actual and budgeted return on investment (ROI) based on segment margin and assets controlled by the segment.

a. True
b. False

Answer 1

True

Step-by-step explanation:

Return on Investment (ROI) is the proportion of operating assets that an investment center earned as as net operating income.

ROI is measure of the returned earned by a division relative to the amount invested in the assets used to generate the return.

It is calculated as follows

ROI = operating income/operating assets × 100

To evaluate a division, the division's ROI is compared to the budgeted ROI of the company. An actual ROI that exceeds the budgeted is considered a good performance and vice versa