The text discusses how Quaker Oats used economic value added to evaluate the practice of trade loading,which is a practice of loading up the supply line with product to last several months.This application of economic value added would focus on:
A)comparing the profit changes caused by trade loading with changes in customer satisfaction.
B)the effect on partners in the distribution channel caused by abandoning trade loading.
C)the difference in prices caused by trade loading.
D)comparing the benefits and costs of trade loading with the required investment in inventory.

Question

Quizplus · Accepted Answer

Economic value added (EVA) is a financial performance measure that compares the net operating profit (after taxes) with the required investment in inventory. Therefore, option D best describes the focus of using EVA to evaluate the practice of trade loading, by comparing the benefits and costs of trade loading with the required investment in inventory. Factors such as profit changes and customer satisfaction are not directly related to EVA, while the effect on partners in the distribution channel is also not the primary focus of EVA in this context. The difference in prices caused by trade loading may be a consideration, but it is not the main focus of EVA in this scenario.

The Text Discusses How Quaker Oats Used Economic Value Added