When using financial performance measures,which of the following statements is incorrect?
A) Most companies use a weighted-average to determine the amount of average inventory.
B) Average total assets are used for both ROI and RI computations.
C) The limitations of financial performance measures reinforce the importance of the balanced scorecard.
D) In general, calculating ROI based on the net book value of assets gives managers an incentive to continue using old, outdated equipment because its low net book value results in a higher ROI.

Question

Quizplus · Accepted Answer

Most companies use a weighted-average method for costing inventory, but the statement about determining the amount of average inventory is misleading. The weighted-average cost method is primarily used to assign costs to inventory and cost of goods sold, not to determine the amount of average inventory itself. Average inventory is typically calculated as the sum of the beginning and ending inventory for a period divided by two, and this calculation is not specific to the weighted-average cost method.

When Using Financial Performance Measures,which of the Following Statements Is