Accounting Exam 3 Vocab

An advantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income.

True

Net operating income is income after interest and taxes.

False

Return on investment (ROI) equals margin multiplied by sales.

False

In a flexible budget, what will happen to fixed costs as the activity level increases?

The fixed cost per unit will decrease.

A change in sales has no effect on margin and turnover.

True

A flexible budget performance report contains activity variances but not revenue or spending variances.

False

A flexible budget performance report with more than one cost driver can contain activity variances but not revenue or spending variances due to the increased complexity.

False

A flexible budget performance report with more than one cost driver will always have more unfavorable revenue and spending variances than a performance report with only one cost driver.

False

A flexible budget report should exclude variable costs because they can be expected to change with a change in the level of activity.

False

All other things the same, an increase in unit sales will normally result in an increase in the return on investment.

False

The use of return on investment (ROI) as a performance measure may lead managers to reject a project that would be favorable for the company as a whole.

False

Flexible budgets can be used when there is more than one cost driver (i.e., measure of activity).

True

Land held for possible plant expansion would be included as an operating asset when computing return on investment (ROI).

True

Performance reports with more than one cost driver typically have more accurate variances than those based on one cost driver.

True

When used in return on investment (ROI) calculations, turnover equals sales divided by average operating assets.

True

When using a flexible budget, a decrease in activity within the relevant range:

decreases total costs.