Measuring divisional profitability

  • Colin Drury


After studying this chapter, you should be able to:
  • distinguish between functional and divisionalized organizational structures;

  • explain the factors that should be considered in designing performance measures for evaluating divisional managers;

  • explain why it is preferable to distinguish between managerial and economic performance;

  • distinguish between return on investment and residual income;

  • calculate controllable residual income;

  • illustrate how performance measures may conflict with the net present value decision model;

  • justify the use of a risk-adjusted discount rate for evaluating divisional projects;

  • explain why it is important to include additional non-financial measures in divisional performance reports.


Cash Flow Residual Income Divisional Performance Goal Congruence Investment Centre 
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References and Further Reading

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  30. Shillinglaw, G.D. (1982) Cost Accounting: Analysis and Control, R.D. Irwin; see also Guides to internal profit measurement, Harvard Business Review, 35(2), March/April 1957, 22–9;Google Scholar
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  33. Tomkins, C. (1975a) Another look at residual income, Journal of Business Finance and Accounting,2 (1), 39–54.CrossRefGoogle Scholar
  34. Tomkins, C. (1975b) Residual income–a rebuttal of Professor Amey’s arguments, Journal of Business Finance and Accounting, No. 2, Summer, 161–8.Google Scholar
  35. Vancil, R.P. (1979) Decentralization: Ambiguity by Design,R.D Irwin.Google Scholar

Copyright information

© J.C. Drury 1992

Authors and Affiliations

  • Colin Drury
    • 1
  1. 1.Huddersfield PolytechnicUK

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