Which of the Following Is True of Economic Value Added

question 77

Multiple Choice

Which of the following is true of economic value added (EVA) ?

• A) Economic value added is calculated by adding revenue to operating profit.
• B) Economic value added is calculated by multiplying margin ratio and average operating assets.
• C) Economic value added is calculated by dividing operating income by sales.
• D) Economic value added is calculated by deducting the dollar cost of capital employed from after-tax operating income.

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Definitions:

Support Department Costs

Expenses incurred by service departments that do not directly produce goods but support other departments that do.

Total Janitorial Costs

The complete expenses associated with cleaning and maintaining a facility.

Market Value

The current price at which an asset or service can be bought or sold in the open market, subject to supply and demand.

Reciprocal Services Method

A method used in cost accounting to allocate costs between interdependent departments, acknowledging mutual services they provide to each other.