Return on Investment Cannot Be Used Effectively to Evaluate Profit

question 58

True/False

Return on investment cannot be used effectively to evaluate profit centres because it motivates managers to make suboptimal decisions from the viewpoint of the organisations' owners.

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Definitions:

Cost Of Goods Manufactured

The total direct costs, indirect manufacturing costs, and labor associated with the production of goods over a specific period.

Direct Costs

Direct costs are expenses that can be directly attributed to the production of a specific product or service, such as raw materials and labor costs.

Factory Supplies Expense

The cost associated with supplies used in the production process within a manufacturing facility.

Depreciation Expense-Factory

The portion of a factory's fixed assets' cost allocated as an expense during a fiscal period, due to wear and tear.