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I have two questions relating to Chapter 17 Divisonal Performance
(1)
ROI is defined as Controllable Profit / Controllable Investment expressed as a percentageControllable Profit is by taking the Revenue and less by all controllable costs by the divisional manager
Controllable Investment is also called Net Assets or Capital Employed which is simply Equity plus Non-current Liability of a company
(2)
What is Goal Congruence?Is it correct that if the manager’s decision about investing capital into new investment comes out to be profitable then he has made a Goal Congruent decision because the manager’s decision will be profitable for the company as a whole so it is goal congruent decision?
(1) The controllable profit is as you have defined it. As far as controllable assets are concerned they are the net assets. that are controlled by the manager. Divisions do not have equity.
(2) Goal congruent means same aim, and the job of the manager is not simply to make a profit but is to make the level of profit that the company as a whole requires. So if the manager is being measured on ROI then their job is to make sure that they invest in assets that will increase the ROI of their division.
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