Question

1.Return on investment can be increased by:

a) increasing operating assets

b) decreasing operating assets

c) decreasing revenues

2. A problem with using residual income is that a corporation with a:

a) high investment turnover ratio always has a higher residual income than a corporation with a smaller investment turnover ratio

b) high return on sales always has a higher residual income than a corporation with a smaller return on sales

c) larger dollar amount of assets is likely to have a higher residual income than a corporation with a smaller dollar amount of assets

d) None of these answers is correct.

3) In performance evaluations:

a) the performance of the division prior to the manager assuming control should be considered

b) economic conditions for the specific industry should not be considered

c) to have an effective and fair evaluation, a manager should be evaluated over several time periods

d) Both A and C are correct.

4) Transfer pricing is used when

a) a company has cost centers.

b) a company has profit centers or investment centers.

c) the return on investment ratio cannot be computed.

d) residual income cannot be computed.

Answer 1

1. Return on investment can be increased by decreasing operating assets

Option B.

2. A problem with using residual income is that large value of assets having higher residual income than a small value of assets.

So the answer is option c.

3. In performance evaluation , the performance of division prior to the manager control should be considered and for effective and fair evaluation a manager should be evaluated over several times.

So the answer is option d .

4. Transfer pricing is used when the company has profit centers or investment centers

Option B is the answer.