A Company Which Favors the Residual Income Approach Wants Managers

question 126

Multiple Choice

A company which favors the residual income approach wants managers to ________.

• A) concentrate on maximizing an absolute amount of dollars
• B) concentrate on maximizing a percentage return
• C) maximize the investment turnover ratio
• D) maximize return on sales

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Definitions:

Operating Income

The profit realized from a business's core operating activities, excluding costs and revenues from non-operating activities.

Variable Costing

An accounting methodology that only includes variable production costs (costs that change with the level of output) in product costs.

Absorption Costing

An accounting method that includes all of the costs associated with manufacturing a product in the cost of that product.

Operating Income

Earnings before interest and taxes (EBIT), a measure of a company's profitability from its operations.