When assessing performance,one way to compensate for differences among divisions of a multinational organization would be for the parent company to
A)use different target rates of return to compute residual incomes.
B)modify the return on investment calculation so that foreign currency fluctuations are removed from all financial statement figures.
C)classify all domestic divisions as investment centers and all foreign divisions as profit centers.
D)use financial performance measures for units whose records are kept in the domestic currency and non-financial measures for units whose records are kept in a foreign currency.

Question

Quizplus · Accepted Answer

Using different target rates of return to compute residual incomes can help compensate for differences among divisions of a multinational organization because it takes into account the different economic conditions, risks, and operational circumstances faced by each division. This approach allows for flexibility and customization when setting performance targets based on the unique characteristics of each division. This is a more effective approach than modifying the return on investment calculation or using different classifications for domestic and foreign divisions, which may not accurately capture performance differences. Additionally, using financial performance measures for some units and non-financial measures for others may make it difficult to compare performance across divisions.

When Assessing Performance,one Way to Compensate for Differences Among Divisions