ACCTG 1 Lecture Notes - Lecture 5: Transfer Pricing, Variable Cost
Document Summary
If the roi is > the min rrr, then the segment is doing well/better than expected. The minimum required rate of return is what corporate reasonably expects the segment"s roi to be. If roi < min rrr, the segment is doing poorly. Ri = excess % return * avg op assets. Think of ri like extra dollars of return. Find the excess % return by: roi min rrr. Both roi and ri shoe if you"re doing well or not. An investment opportunity/project means that there will be an initial expenditure on assets, and that there"s future noi expected. If a project is presented to a manager who is evaluated with roi, the manager will accept the project if the project"s roi is greater than the segments current roi. If a segment manager who is evaluated on ri is present with a project, the manager will accept the project if the project"s roi is greater than the min.
