A Segment of an Organization Is Referred to as an Investment

question 5

Multiple Choice

A segment of an organization is referred to as an investment center if it has:

• A) Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply.
• B) Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply and significant control over the amount of invested capital.
• C) Authority to make decisions over the most significant costs of operations, including the power to choose sources of supply.
• D) Authority to provide specialized support to other units within the organization.
• E) Responsibility for developing markets for and selling the output of the organization.

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Definitions:

Variable Costing

A financial recording approach that incorporates only variable manufacturing expenses, such as raw materials, direct workforce, and fluctuating production overheads, into the costs of goods produced.

Net Operating Income

A financial term representing the profit made from a company’s operations, after subtracting operating expenses from operating income.

Absorption Costing

The product cost determination method under this accounting strategy includes the expenses for direct materials, direct labor, and all manufacturing overhead, whether it is variable or fixed.

Gross Margin

A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage.