ACCTG 102 Lecture Notes - Lecture 20: Balanced Scorecard, Cost Accounting, Management Accounting
Document Summary
Improving roi: either 1) raise controllable margin or 2) reduce average operating assets: controllable margin can be raised by increasing sales or reducing vc and controllable fc. An increase in sales benefits company and investment center unless at expense of other investment centers. Reducing costs is good way to improve roi if cost reductions are due to eliminating inefficiencies, but if are reducing vital costs like maintenance, this is not good: if you reduce average operating assets, roi improves. It is good to eliminate over investment in inventories and dispose of excessive plant assets, but not good if reduce inventory below needs or dispose of essential assets. Roi has two judgmental factors: valuation of operating assets; value at bv, appraised value or market value, margin measure; can be controllable margin income from operations or ni. Each alternative for operating assets is ok as long as used consistently. However using other than controllable margin will not result in valid basis.
