The choice of valuation method for inventories would normally not affect which item(s) used in calculating Return on Investment (ROI)?
A) The valuation of fixed assets (e.g., Plant, Property, and Equipment) used by an investment center.
B) The amount of operating income earned by an investment center in a given period.
C) Both the investment base and the level of operating income reported by an investment center.
D) The estimated value of current assets of a business entity, such as an investment center.
E) The return on sales (ROS) of an investment center for the period.

Question

Quizplus · Accepted Answer

The choice of valuation method for inventories is not directly related to the valuation of fixed assets, which is used to determine the investment base of an investment center. The amount of operating income earned by an investment center is also not affected by the inventory valuation method. However, both the investment base and the level of operating income reported by an investment center can be affected by the choice of valuation method for current assets, such as accounts receivable or cash. The return on sales (ROS) of an investment center is also not directly related to the inventory valuation method.

The Choice of Valuation Method for Inventories Would Normally Not