Cost Accounting Last

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.

Both (A) and (B) are false

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.

Both (A) and (B) are true.

Level return on investments (ROI) over the life of a long-term project is more likely when ROI is computed using

current costs and gross book values

Level return on investments (ROI) over the life of a long-term project is more likely when ROI is computed using:

current costs and gross book values.

Using beginning balances for the investment base in computing return on investment (ROI) might encourage managers to acquire assets:

early in the year and dispose of assets late in the year.

How will increases in the following items affect return on investment (ROI)?

expenses - decreases, inventory - decreases

How will increases in the following items affect return on investment (ROI)?

expenses decrease; inventory decrease

A manager can always increase his/her return on investment (ROI) by

increasing the operating profit margin

A manager can always increase his/her return on investment (ROI) by:

increasing the operating profit margin.

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)

residual income concentrates on maximizing absolute dollars of income rather than a percentage return, as with ROI.

How will increases in the following items affect residual income?

sales increase, equipment decrease

How will increases in the following items affect residual income?

sales increase; equipment decrease

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.

true

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?

uses process costing rather than job costing