Churl Clothing has three divisions. It measures performance in these divisions primarily by using a measure...

Churl Clothing has three divisions. It measures performance in these divisions primarily by using a measure of return on investment (ROI). ROI is used to evaluate the division managers and to allocate resources in the budgeting process. What are the likely results of such a practice? Do you recommend it? Why or why not? Churl Clothing has three divisions. It measures performance in these divisions primarily by using a measure of return on investment (ROI). ROI is used to evaluate the division managers and to allocate resources in the budgeting process. What are the likely results of such a practice? Do you recommend it? Why or why not? Churl Clothing has three divisions. It measures performance in these divisions primarily by using a measure of return on investment (ROI). ROI is used to evaluate the division managers and to allocate resources in the budgeting process. What are the likely results of such a practice? Do you recommend it? Why or why not?

Expert Solution

Given in the question is that the Churl Clothing has three divisions and It measures performance in these divisions primarily by using a measure of return on investment (ROI). ROI is used to evaluate the division managers and to allocate resources in the budgeting process.

RETURN ON INVESTMENT(ROI) is the key performance indicator that is often used by the business to determine the profitablity of an expenditure.Through ROI we can better understand how well our business is doing and which areas needs improvement to actively achieve our goals.

The following are the advantages of ROI

1)COMPARATIVE ANALYSIS- It helps in making comparison between different units of a business organisation in terms of profitabililty and asset utilisation.ROI is a good measure because it can be easily compared with related cost of capital to decide the investment oppurtunities.

2)BETTER MEASURE OF PROFITABILITY:It relates net income to investment made in the division giving a better measure of divisional profitability

3)ACHIEVING GOAL CONGRUENCE:It insures GOAL CONGRUENCE between different division in the organisation and any increase in the divisional ROI will lead to increase in overall ROI.

4)PERFORMANCE OF INVESTMENT DIVISION:ROI is important in measurin perfrmance of investment decision which focuses on earning maximum profit and making appropriate decision regarding acquisition and disposal of capital assets

5)ROI AS AN INDICATOR OF OTHER PERFORMANCE INGREDIENT:It is considered single most important measure of performance of investment decision.

So it can be concluded that the decision of Churl Clothing to measures performance in these divisions primarily by using a measure of return on investment is CORRECT as it has various advantages which can help to understand performance of various division better. and ROI is exceptionally useful in measuring success over the time.

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ekkarill92 answered 2 years ago

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