Profit, Loss and Discount is very important topic for CAT and significant number of questions are asked from this topic every year. The gross profit is calculated by deducting all the direct expenses called cost of goods sold from the sales revenue. what is the gain or loss% Answer:Here The cost pens less than the selling pens, so in this process get profit . There is not only will the cost of capital of divisions that have different levels of risk differ so may the risk and cost of capital of assets within the same division. Divisional ROI is calculated by subtracting the operating cost of the division from the division's profits, then dividing that amount by the operating cost. Lastly, the performance Prism has considered the stakeholder satisfaction and stakeholder contribution compare to other performance measurement don’t consider it. For comparing the economic performance of a division, net income is likely to be the preferred profit measure to be used as the numerator to compute ROI in order to ensure consistency with the measures that are derived from the financial reports of similar companies outside of the group. A further attraction of ROI is that it can compare the return of different businesses field for example division within the company or competitors by adopting it as a common denominator. In fact, companies which have adopted EVA as the basis of management performance measurement have experienced a significant increase in their shareholders’ wealth. b. And . Therefore, it’s hard to understand or know what the manager did caused what to happen. The ROI formula recognises that the absolute size of divisional operating profit alone does not provide a basis for measuring its performance, but rather the relation between the division’s net income and the assets used in the generation of that income. Management by objectives. To calculate the division's profit margin, divide its net income by its revenues. Let us take the example of a Retail Food & Beverage Shop that has clocked total sales of \$100,000 during the year ended on December 31, 2018. I am confused about the answer to December 2007 Q2 a) (ii) which is divisional profit. The apparent success of EVA is that many companies had derived from using EVA to motivate and evaluate corporate and divisional managers. D1, D2 and D3 are divisional profits. ROI focuses on short-term profitability, looking only at the last quarter or last year for performance evaluation. Next, it assists to integrate different company activities such as quality and customer service. Creating Dynamic Data Validation. This year, the corporate headquarters has set a profit target which is 10% more than the last year. The RI measure enables to calculate the different risk-adjusted in capital cost while ROI cannot incorporate these differences. They state the outcomes of management’s actions after a period of time, produce too late to influence current decisions. Some claim these performance indicators have a high reliance on financial perspectives and thus portrait only one facet of the organisation. Free Ride Bike Company Divisional Income Statements For the Year Ended December 31, 20Y7 Road Bike Division Mountain Bike Division Sales \$ \$ Cost of goods sold Gross profit \$ \$ Operating expenses Operating income \$ \$ 2. Decid­ing on the denominator is a complex decision. The major problem is obtaining profit measures are based on the historical cost concept and thus tend to be poor estimates of economic performance. Born in West Virginia, Jack Gerard now lives in Kentucky. Residual income overcomes the dysfunctional aspect of ROI. 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