By Using the Rate of Return on Investment as a Divisional

question 81

True/False

By using the rate of return on investment as a divisional performance measure, divisional managers will always be motivated to invest in proposals which will increase the overall rate of return for the company.

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Definitions:

Operating Profit

Earnings of a business before interest and taxes are deducted.

Rate of Mark-up

A pricing strategy calculation, expressed as a percentage, indicating how much higher a product's selling price is compared to its cost to produce or purchase.

Overhead Expenses

Costs not directly tied to the creation of a product or service but necessary for running a business, such as rent and utilities.

Volume Discount

A price reduction applied to a purchase based on the quantity of items bought, encouraging larger orders.