The Following Are Advantages of Using EVA as a Performance

question 16

Multiple Choice

The following are advantages of using EVA as a performance measure except

• A)EVA can substitute for explicit monitoring by top management.
• B)EVA makes the cost of capital visible to operating management, thereby reducing capital employed.
• C)EVA does not measure present values.
• D)EVA highlights business units that are underperforming their peers.

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Definitions:

Efficiency Losses

Reductions in economic well-being, reflected by the inability of a market to allocate resources optimally.

Standard Costs

The predetermined expenses for the production of a product or operation of a service, used as a baseline to measure performance.

Direct Labor Wage Variance

The difference between the expected cost of direct labor for production and the actual cost incurred.

Direct Labor Efficiency Variance

The difference between the actual hours worked and the standard hours expected, multiplied by the standard labor rate.