Indicate whether each of the following statements is true or false A. Return on
ID: 2571091 • Letter: I
Question
Indicate whether each of the following statements is true or false
A. Return on investment often is used to evaluate cost centers within a company
B. Return on investment measures a managers ability to maximize earnings above a target level
C. To calculate residual income a company must first set a target or desired return on investment
D. Residual income is stated as a dollar amount
E. Suboptimization occurs when a department or division manager seeks to maximize benefit for the company as a whole at the expense of his or her own best interest.
Explanation / Answer
A. Return on investment often is used to evaluate cost centers within a company - TRUE
B. Return on investment measures a managers ability to maximize earnings above a target level - FALSE (Residual Income measures a manager's ability to maximize earning above a target level).
C. To calculate residual income a company must first set a target or desired return on investment- TRUE (Residual Income means the return earned by the department which is in excess of the minimum required income).
D. Residual income is stated as a dollar amount - TRUE (ROI is calculated for a percentage or orate, but RI is calculated and stated as an absolute dollar value.
E. Suboptimization occurs when a department or division manager seeks to maximize benefit for the company as a whole at the expense of his or her own best interest.- FALSE (Suboptimization occurs when each seperate unit in a company, attempt to reach a target that is best for that unit and not the company as a whole).