Question

To evaluate the financial performance of an investment center, a business needs key performance indicators that measure ________.

A) manufacturing efficiency and product defect rate
B) operating income and the use of the center's assets
C) customer satisfaction and market share
D) generation of sales revenues and control of operating expenses

Answer 1

Key performance indicators for evaluating the financial performance of an investment center are operating income and the use of the center's assets, as these measures directly indicate profitability and resource utilization.

Step-by-step explanation:

To evaluate the financial performance of an investment center, key performance indicators (KPIs) that measure operating income and the use of the center's assets are necessary. These KPIs reflect the center's ability to generate profits and effectively use resources. Unlike the focus on manufacturing efficiency or product defect rates, operating income provides a direct measure of the center's profitability.

Similarly, assessing the use of assets is essential because it shows how effectively the investment center is utilizing its resources to generate revenue. These KPIs align with what a manager at a firm would prioritize, such as the on-time performance of a company's production, and are less concerned with transitory elements that do not significantly impact the bottom line.