Financial performance measures are essential tools used by managers to evaluate the financial  health of their organization. They provide an overview of the company's financial  performance, help identify areas of improvement, and support decision making. CarniTrin is a manufacturer of Carnival costumes in a highly competitive market. The  company's management team is seeking guidance on the use of financial performance  measures to identify the key drivers of the company's financial performance and develop a  strategy to improve it. The following data relate to the company for the year 2019:  In its clothing division, the company has $4,000,000 invested in assets. After-tax  operating income from sales of clothing in 2019 is $700,000. Income for the clothing  division has grown steadily over the last few years  The cosmetics division has $12,000,000 invested in assets and an after-tax operating  income in 2019 of $1,700,000  The weighted-average cost of capital for CarniTrin is 10% and the 2018’s after-tax  return on investment for each division was 15%.   The general manager of CarniTrin has asserted that in future, managers should have  their compensation structure aligned with their performance measures with no fixed  salaries. However, the general manager has told the manager of each division that the  better division in 2019 will get a bonus Question Part B 2. There may be a difference between the performance of a manager and the  performance of the organization subunit for which the manager is responsible. Why is  it important to make this distinction?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Financial performance measures are essential tools used by managers to evaluate the financial 
health of their organization. They provide an overview of the company's financial 
performance, help identify areas of improvement, and support decision making.
CarniTrin is a manufacturer of Carnival costumes in a highly competitive market. The 
company's management team is seeking guidance on the use of financial performance 
measures to identify the key drivers of the company's financial performance and develop a 
strategy to improve it.

The following data relate to the company for the year 2019:
 In its clothing division, the company has $4,000,000 invested in assets. After-tax 
operating income from sales of clothing in 2019 is $700,000. Income for the clothing 
division has grown steadily over the last few years

 The cosmetics division has $12,000,000 invested in assets and an after-tax operating 
income in 2019 of $1,700,000

 The weighted-average cost of capital for CarniTrin is 10% and the 2018’s after-tax 
return on investment for each division was 15%. 

 The general manager of CarniTrin has asserted that in future, managers should have 
their compensation structure aligned with their performance measures with no fixed 
salaries. However, the general manager has told the manager of each division that the 
better division in 2019 will get a bonus

Question Part B

2. There may be a difference between the performance of a manager and the 
performance of the organization subunit for which the manager is responsible. Why is 
it important to make this distinction?

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