Which of the following statements regarding responsibility accounting systems is true! O Residual income is best used when evaluating the performance of profit centers rather than investment centers. An advantage of using return on investment to evaluate performance is that it encourages managers to increase both operating assets and operating income. O The use of residual income as a performance measure may lead segment managers to reject investments in projects that would be favorable for the company as a whole. Residual income is a less effective metric for evaluating performance if there are significant difference in the size of the operating segments. None of the above statements is true.

Which of the following statements regarding responsibility accounting systems is true! O Residual income is best used when evaluating the performance of profit centers rather than investment centers. An advantage of using return on investment to evaluate performance is that it encourages managers to increase both operating assets and operating income. O The use of residual income as a performance measure may lead segment managers to reject investments in projects that would be favorable for the company as a whole. Residual income is a less effective metric for evaluating performance if there are significant difference in the size of the operating segments. None of the above statements is true.

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter28: The Balanced Scorecard And Corporate Social Responsibility

Section: Chapter Questions

Problem 1TIF

See similar textbooks

Similar questions

Which of the following is not a characteristic of a good performance measurement system? A. timely B. consistent C. based on activities over which managers have no control or influence D. uses both long- and short-term performances and standards
What of the following is NOT a Benefit of Activity Based Management? a.It assists in the budgeting process. b.It aids management in cost cutting and/or cost control and inferentially in product profitability. c.It causes managers to identify non-value added activities and therefore encourages thinking of means of reducing such activities. d.Is more complex than traditional accounting system because it uses multiple cost application rates, one for each activity or cost pool.
Please explain a major shortcoming of using income from operations as a performance measure for investment centers.
Please describe a significant disadvantage of utilizing income from operations as a performance indicator for investment centers.
Which of the following is not a measure that management can use in evaluating and controlling investment center performance? a.residual income b.negotiated price c.income from operations d.rate of return on investment
How may using ROI as a success indicator for investment centers lead to poor decisions? How does the residual income strategy address this issue?
The following sentences relate to achieving the financial goal of cost minimization. Which of the following statements is FALSE? a. Prioritizing which costs to incur relates to the operating decisions of the firm only.b. Savings is the end product of this financial goal.c. There is a need to determine cost.d. Controling costs involves addressing unfavorable cost variances.
Which of the following statement(s) is/are not true? i. Return On Investment (ROI) as a performance measure may discourage managers of divisions with high ROIs to invest in projects with lower ROIs that are acceptable to the organization as a whole. ii. ROI incorporates the firm’s opportunity cost of acquiring investment capital. iii. Under Residual Income (RI), rates of return can be adjusted to take into account differences in risks for different investment assets. iv. Both ROI and RI use a percentage measure. v. ROIs cannot be used to compare divisions of differing sizes. Multiple Choice ii, iv and v ii, iii and iv i, ii and iii i and ii i only
Which of the following statement(s) is/are not true? i. Return On Investment (ROI) as a performance measure may discourage managers of divisions with high ROIs to invest in projects with lower ROIs that are acceptable to the organization as a whole. ii. ROI incorporates the firm’s opportunity cost of acquiring investment capital. iii. Under Residual Income (RI), rates of return can be adjusted to take into account differences in risks for different investment assets. iv. Both ROI and RI use a percentage measure. v. ROIs cannot be used to compare divisions of differing sizes. Multiple Choice a)i, ii and iii b)ii, iv and v c)i only d)i and ii e)ii, iii and iv
Explain and give an example as to how a manager can manipulate the return on investment figure in the short run. Why are these manipulations bad for the company in the long run? Suggest some alternative performance evaluation and compensation schemes.
Differentiate between a cost center, profit center, and investment center. What is the major shortcoming of using operating income as a performance measure for investment centers? Why should the factors under the control of the investment center manager (revenues, expenses, and invested assets) be considered in computing the return on investment? In a decentralized company in which the divisions are organized as investment centers, how could a division be considered the least profitable, even though it earned the largest amount of operating income? Does the concept of decentralization--top managers allowing middle and lower-level managers to make decisions--have application to God's plan for us? In other words, does God make decisions for us or does he allow us to make decisions in our own lives? Is this good or bad? How does using the return on investment facilitate comparability between divisions of decentralized companies?