Basic Accounting Knowledge: Investment Center
Investment center means that the subordinate manager has all the responsibilities described by the profit center, and at the same time, he has to do business. capital And physical assets are also available. responsibility With power, and by its place Use The level of tangible assets and financial assets is the center of performance measurement standards, such as subsidiaries, branches and business units of large groups.
Investment center is a general form of profit center, and its profitability is related to the profit making assets.
The typical investment center's performance measurement standard is the rate of return on investment and the economic value added.
However, managers who try to extend the rate of return on investment may have a tendency to reject investment opportunities which are lower than the current return on investment but higher than the cost of departmental capital.
This problem can be overcome by economic value added.
Economic value added is obtained by deducting the capital cost of departmental average investment from departmental net income.
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