Business Unit Performance Measurement - Evaluate divisional accouting income as a performance measure
6 important questions on Business Unit Performance Measurement - Evaluate divisional accouting income as a performance measure
Divisional income (accounting income)
Division revenue - division costs
Advantages divisional income
- Easy to understand.
- Decisions controlled by the manager are reflected.
- Results of decisions affecting revenues and costs are summarized.
- It makes comparision of divisions easy.
Disadvantages divisional income
- The divisions may be of different size.
- The measure does not fully reflect the managers decisions authority. It does not determine if managers are making good decicions regarding the use of assets.
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Gross margin ratio
sales - cost of goods sold / sales
Operating margin ratio
Operating income (bedrijfsresultaat) / sales
Profit margin ratio
After-tax income / sales
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