1. Use of residual income to evaluate the performance of divisions may lead to a
ID: 2452922 • Letter: 1
Question
1. Use of residual income to evaluate the performance of divisions may lead to a reduction in suboptimizing behavior by managers, compared to the use of return on investment to evaluate performance. true or false
2. Investment centers are often evaluated on the basis of return on investment. true or false
3. Performance evaluation of the segments of an organization should be done in a manner that promotes management by exception. true or false
4. Management by exception means that only unfavorable cost variances are investigated. true or false
5. A standard is the amount a price, cost, or quantity should be. true or false
6. A variance that is favorable may indicate the existence of unfavorable conditions. true or false
Explanation / Answer
1- Use of residual income to evaluate the performance of divisions may lead to a reduction in suboptimizing behavior by managers, compared to the use of return on investment to evaluate performance. true because Residual income is a measure used as part of divisional performance management for investment centres.
2- Investment centers are often evaluated on the basis of return on investment. true because Return on investment (ROI) is often used to evaluate their performance.
3- Performance evaluation of the segments of an organization should be done in a manner that promotes management by exception. true because problematic issues are identified rapidly and managers are able to use their time and energy more wisely for important issues rather than for less important ones that could provoke delays in their daily operations
4- Management by exception means that only unfavorable cost variances are investigated. false because it is used for Investigating significant cost variances
5- A standard is the amount a price, cost, or quantity should be. true because standard is that it is something that is predetermined or planned and management wishes that actual results equate to standards.
6-A variance that is favorable may indicate the existence of unfavorable conditions. False because An unfavorable variance may be due to poor planning rather than due to inefficiency
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