The major shortcoming of using operating income as an investment center performance measure is that, it ignores the amount of assets invested in each center.

Question

Quizplus · Accepted Answer

Operating income alone does not provide insight into the efficiency of resource utilization or the amount of investment required to generate that income. Thus, it is important to also consider return on investment (ROI) or residual income as performance measures for investment centers, which take into account the assets invested in each center.

The Major Shortcoming of Using Operating Income as an Investment