- This topic has 3 replies, 2 voices, and was last updated 3 months ago by John Moffat.
- You must be logged in to reply to this topic.
ACCA Webinars: How to earn marks in Strategic Professional Exams. Learn more >>
20% off BPP Books for ACCA & CIMA exams - Get BPP Discount Code >>
Why we say only Roi comparison is depend on size while RI is also depend on size
Sir i have additional question. How building up high level of inventory lead the division to increase divisional manger bonus in divisional management
First question: we do not say it as you have written it.
With RI, a division that has much more assets is likely to have a much bigger profit and therefore a much bigger RI.
However that does not necessarily mean that the assets are invested well. ROI is a % measure and therefore much more profit will not necessarily mean a much bigger % of the bigger assets.
That will happen is they are using absorption costing. The more units they produce then the lower will be the cost per unit, and therefore the more the profit per unit (and therefore more bonus is the managers bonus depends on the profit). That is fine if they are selling all the units, but if they are not selling them and therefore building up higher inventory then they might end up never being able to sell them.