Residual Income Is a Performance Evaluation That Is Used in Conjunction

question 134

Multiple Choice

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)

• A) residual income is a measure over time, while ROI represents the results for one period.
• B) residual income concentrates on maximizing absolute dollars of income rather than a percentage return, as with ROI.
• C) the imputed interest rate used in calculating residual income is more easily derived than the target rate that is compared to the calculated ROI.
• D) average investment is employed with residual income while year-end investment is employed with ROI.

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Definitions:

Assembly

The process of putting together components or parts to build a finished product, often involving a combination of manual and automated techniques in manufacturing.

Predetermined Overhead Rate

An estimated overhead cost rate used in cost accounting to allocate expected indirect costs to specific products or job orders based on a specific activity base.

Machine-Hours

A measure of production time, where one machine-hour equals one hour of operation of a machine.

Direct Labor-Hours

The total hours worked by employees that are directly involved in the manufacturing of products or providing services.