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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
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 income from operations?

To determine

Decentralized operations: In a company where the plans and operating decisions are delegated to the divisional managers, such a company is said to have decentralized operations.

Investment center: A department or unit or division of a corporation where its manager is assigned the responsibility of costs, revenues, and resources invested in assets, is referred to as investment center.

To indicate: Reasons which describe that a division with high income from operations could be considered as least profitable, in a decentralized company where the divisions are organized as investment centers

Explanation
In a decentralized company, divisions are structured as investment centers. So, the performance measures of an investment center, like income from operations, return on investment, and r...

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