Skip to content

CMA Foundation · Fundamentals of Financial and Cost Accounting · Cost, Cost Centre, Cost Unit and Cost Drivers

Bharat Auto's Component Division has operating profit of ₹18,00,000 and capital employed of ₹90,00,000. The division is an investment centre. Its Return on Investment (ROI) is:

ROI is operating profit divided by capital employed, so 18,00,000 divided by 90,00,000 equals 20%. This is the standard measure of performance for an investment centre, which is accountable for both profit and the capital invested in it.

  1. A5%
  2. B20%Correct
  3. C25%
  4. D50%

Explanation

ROI = operating profit ÷ capital employed × 100 = 18,00,000 ÷ 90,00,000 × 100 = 20%. Check: 20% of 90,00,000 = 18,00,000. The 5% option comes from dividing the capital by the profit incorrectly (1/20), which is an inverted ratio.

Did you get it right without looking?

One question tells you little. A timed set on Cost, Cost Centre, Cost Unit and Cost Drivers shows your real accuracy, how long you take and where you lose marks.

Practise Cost, Cost Centre, Cost Unit and Cost DriversFree diagnostic mock

More Cost, Cost Centre, Cost Unit and Cost Drivers questions