According to your textbook, “A budget can have a significant impact on human behavior. Participative budgeting can foster budgetary “gaming”… a budget can be a manager’s friend or foe”.

Required:
a). Critically evaluate the issues raised in the above excerpt.
b). Return on Investment (ROI) is commonly used to measure divisional performance and awards bonuses to divisional management based on their division’s performance.
c). Describe two examples on how a manager can improve his/her division’s ROI, but which may harm the future competitiveness of the company.
d). As a management accountant, criticize how the use of ROI as a performance measure for investment centers can lead to bad decision making. Suggest what steps can be taken to mitigate this effect. 

Answer rating: 100% (QA)

The use of some form of return on investment ROI as a management control device in evaluating the profit performance of division managers has been widely adopted in many decentralized companies Yet th... View the full answer