14 - Divisional Performance Flashcards
1
Q
What is the formula for Return on Investment (ROI)?
A
Divisional Performance (Divisional Profit)/Divisional Investment (Capital Employed) x 100 (to show as percentage)
1
Q
What is the formula for Residual Income (RI)?
A
Divisional Net Profit - Notional Imputed Interest (Divisional Investment x Cost of Capital
2
Q
What is a transfer price?
A
The price on division sells a product to another division for (within the same company) to correctly allocate sales to each division for targets. For example, if a factory manufactures goods, they won’t also sell them to customers so instead they come up with a price to sell them to the sales department so that they can also reach their targets.
