Using Residual Income as a Measure of Performance Rather Than

question 62

Multiple Choice

Using residual income as a measure of performance rather than return on investment promotes goal congruence because residual income ________.

• A) places importance on the reduction of underperforming assets
• B) calculates a percentage return rather than an absolute return
• C) concentrates on maximizing an absolute amount of dollars
• D) concentrates on maximizing the return on sales

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Definitions:

Total Cost Transferred

The aggregate cost of goods or services moved from one stage of production to another, or from production to finished goods, within a given period.

Conversion Costs

The combined costs of direct labor and manufacturing overheads that are incurred to convert raw materials into finished goods.

Cost Per Equivalent Unit

A measure in process costing that calculates the cost assigned to a unit, considering the stage of completion.

Processing Department

A division within a manufacturing facility where a specific type of process or a stage of production is carried out.