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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

In a decentralized company in which the divisions are organized as investment centers, how could a division be considered the least profitable, even though it earned the largest amount of operating income?

To determine

Concept Introduction:

Cost center:

Cost center incurs costs and does not generate the revenue directlyInvestment Center:

Investment center takes care of revenue, cost and investment

Profit Center:

Profit center generate revenue and incur expenses

To Indicate:

How an investment center having largest amount of income can be least profitable

Explanation

Investment center takes care of revenue, cost and investment.

All the factors of investments centers (revenue, expenses and invested assets) should be considered in computation of return on investment because the ...

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