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In: Accounting

If the revenue of a segment does not cover its variable costs and its traceable fixed...

If the revenue of a segment does not cover its variable costs and its traceable fixed costs, that segment should usually be dropped. True or False?

A complete and detailed income statement does need not be prepared as part of a differential cost analysis. True or False?

When a balanced scorecard is correctly developed and implemented, the four performance measures should be separate and independent of each other so that the bad performance of one measure will not result in the bad performance of another performance measure. True or False?

If Blister Corp. has a number of investment centers of different sizes, residual income should not be used to rank the financial performance of those divisions. Instead, return on investment (ROI) should be used. True or False?

Solutions

Expert Solution

True

Division’s sales should cover its variable cost and direct fixed expenses so that it can be continued. If it is not generating sales to cover its variable cost and direct fixed expense the division should be discontinued since it is incurring loss and contributing to the overall loss of the organisation as a whole

True

In Differential analysis only differential cost is relevant for analysis. The differential costs are differential revenue, differential expenses and incremental fixed cost or savings in fixed cost. Costs which are same in both the alternatives can be ignored since they do not have any impact on differential analysis. For example if fixed cost is same it need not be considered in differential analysis

False

Balanced scorecard is a way of measuring a firm’s performance through 4 pillars- Financial, Customer, Internal process and Learning and growth. The measures included in theses are to improve the performance of the business. If organisation is not doing well in one measure it can affect multiple outcomes for example increase in customer service calls can affect customer perspective as well as financial perspective.

True

Residual income takes only cost of capital into account in evaluation of investment. Hence it does not measure the performance relative to investment. ROI is helps in ranking financial performance of each division since the return is expressed as a % of Investment.

ekkarill92 answered 2 years ago
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