The performance evaluation of a profit center is typically based on its
A)segment margin.
B)static budget variance.
C)return on investment.
D)return on assets.

Question

Quizplus · Accepted Answer

Profit centers are evaluated based on their ability to generate profits and minimize costs. As such, segment margin is the most relevant performance measurement for profit centers as it shows the profit contribution after direct expenses are subtracted from the revenue. Options B, C, and D are not ideal for evaluating profit centers. Static budget variance is concerned with how closely actual results match the budgeted figures, while return on investments and return on assets metrics are better suited for evaluating the performance of investment centers or the company as a whole.

The Performance Evaluation of a Profit Center Is Typically Based