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Return on Investment and Residual Income
This is a traditional approach to performance measurement given by:
ROI = Income Invested Capital (method) of Liability analysisROI can provide more insight to performance when it is divided into the Dupont components. The Dupont method states that:ROI = Capital turnover X profit margin = (Revenue / Invested capital) X (Income / Revenue)Dupont method leads to the generalization that ROI can be increased by any action that:
• Decreases costs• Increases revenue• Decreases invested capitalReturn on investment highlights the benefits that managers can obtain by decreasing investment in both current and fixed assets. Investment in cash, inventory, accounts receivable and fixed assets should be minimized for any level of effective performance. This requires that idle cash is invested, proper inventory levels are kept, credit is managed judiciously and fixed assets are invested in carefully.
However, return on investment may induce managers of a highly profitable division to reject projects, which from the view point of the organization as a whole should be accepted. ROI encourages managers to make decisions which may increase short-term profit without considering their effect on the future of the company.
Mosman Ltd makes a single product. The projected sales for the first month of the coming year and the starting and ending inventory data are as follows: Sales 80,000 units Uni
Integer Programming It is a technique for solving a linear programming model with an added constraint that the decision variables must only be non-negative integers. In the
chapter 5 solution
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based on your assumptions, calculate the cost per unit (total product cost on a per unit basis) under a traditional accounting system based on direct labor hours (table 1 prepared
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Using one of the companies from DQ 1, describe how inventory planning and accuracy can be defined using the Pareto principle. The company is Target, Inc.
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