Cost Accounting Last – Flashcards
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Using beginning balances for the investment base in computing return on investment (ROI) might encourage managers to acquire assets:
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early in the year and dispose of assets late in the year.
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Level return on investments (ROI) over the life of a long-term project is more likely when ROI is computed using:
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current costs and gross book values.
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Which of the following statement(s) is/are true?
(A) If a division's return on investment (ROI) exceeds its cost of capital, then its residual income is positive.
(B) If a division's cost of capital equals its return on investment (ROI), then its residual income is zero.
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Both (A) and (B) are true.
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Residual income is a performance evaluation that is used in conjunction with, or instead of, return on investment (ROI). In many cases, residual income is preferred to ROI because: (CIA adapted)
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residual income concentrates on maximizing absolute dollars of income rather than a percentage return, as with ROI.
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How will increases in the following items affect return on investment (ROI)?
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expenses - decreases, inventory - decreases
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A manager can always increase his/her return on investment (ROI) by:
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increasing the operating profit margin.
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Economic value added (EVA) assumes that which of the following GAAP expenses would not result in an adjustment to either the income or the capital employed?
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uses process costing rather than job costing
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Which of the following statement(s) is/are false?
(A) Residual income can be used to compare divisions of different sizes.
(B) Residual income can be used to compare divisions that are profit centers.
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Both (A) and (B) are false
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How will increases in the following items affect residual income?
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sales increase, equipment decrease
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How will increases in the following items affect residual income?
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sales increase; equipment decrease
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How will increases in the following items affect return on investment (ROI)?
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expenses decrease; inventory decrease
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One disadvantage of using after-tax income as a performance measure of divisional results is it's an absolute measure which makes it difficult to compare divisions of significantly different sizes.
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true
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Level return on investments (ROI) over the life of a long-term project is more likely when ROI is computed using
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current costs and gross book values
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A manager can always increase his/her return on investment (ROI) by
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increasing the operating profit margin
