A Disadvantage of Using ROI to Evaluate Performance Is That

question 103

True/False

A disadvantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income.

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Definitions:

Expense Function

A mathematical expression that describes how costs change with variations in the volume of activity.

Expense Functions

Mathematical formulas used to describe the relationship between expenses and other variables such as production or sales volume.

Revenue Functions

Mathematical functions that represent the revenue generated by selling products or services as a function of their price or quantity.

Break Even

The point at which revenue received equals the costs associated with receiving that revenue, resulting in neither profit nor loss.