Which of the following performance measures will increase if inventory decreases and all else remains the same? $\begin{array} { l l l } & \text { Return on Investment}& \text {Residual Income }\\text { A) } & \text { Yes } & \text { Yes } \ \text { B) } & \text { No } & \text { Yes } \ \text { C) } & \text { Yes } & \text { No } \ \text { D) } & \text { No } & \text { No } \end{array}$
A) Choice A
B) Choice B
C) Choice C
D) Choice D

Question

Quizplus · Accepted Answer

Reducing inventory decreases assets, which increases Return on Investment (ROI) as it is calculated as net income divided by total assets. Residual Income increases as it is net income minus a charge for the cost of capital on assets, and with lower assets, the charge decreases.

Which of the Following Performance Measures Will Increase If Inventory