Which One of the Following Is a Correct Statement About

question 25

Multiple Choice

Which one of the following is a correct statement about residual income?

• A) Its goal is to maximize profits of an investment center.
• B) It is less effective for evaluating investment centers than ROI.
• C) It is the ratio of controllable margin to the minimum rate of return on average operating assets.
• D) It evaluates performance by comparing the return of an investment center with the company's minimum rate of return.

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Definitions:

Absorption Costing

A cost calculation approach encompassing all production expenses, such as direct materials, direct labor, along with both variable and fixed overhead costs, in determining the price of a product.

Unsold Units

Inventory items that have not been sold during a specific period, representing potential revenue that has not been realized.

Absorption Costing Balance Sheet

A financial statement that includes all manufacturing costs (direct labor, direct materials, and manufacturing overhead) in the value of finished goods inventory.

Variable Costing

An accounting method that considers only the variable costs directly attributable to the production of goods, excluding fixed manufacturing costs from inventory valuation.