To Reduce the Excessive Focus of Subunit Managers on Their

question 68

Multiple Choice

To reduce the excessive focus of subunit managers on their own subunits, many companies compensate subunit managers on the basis of ________.

• A) both the operating income earned by their respective subunits and the company as a whole
• B) both the investing income earned by their respective subunits and the company as a whole
• C) only the investing income earned by their respective subunits
• D) both the net income and earned by their respective subunits and the company as a whole

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Definitions:

Residual Income

Income that remains after all costs and expenses, including minimum required return on investment, have been subtracted.

Operating Assets

Long-term assets used in the operations of a business, including property, plant, and equipment, that generate income.

Net Operating Income

The profit generated from a company’s everyday business operations, calculated by subtracting operating expenses from revenue.

Minimum Required Rate

The lowest rate of return or discount rate acceptable for a project or investment to proceed.