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Hello Ken,
Divisional Managers performance are rewarded on the basis of accounting rate of return from now on the investments they chose to make in their particular divisions. But they choose not to make new investments because, in the early early years of the investment, the effect will be to reduce the divisions’ ROI.I don’t get this point ? could you help pls. This is a question about responsibility accounting.
BPP KIT QUESTION 23: KLP
Over 6 years the investment might be worthwhile. However, in the early years projects often make losses, so short term the project could damage a manager’s performance. The manager might want to avoid that and so would not take up the investment.
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