Select your language

Suggested languages for you:
Log In Start studying!
Answers without the blur. Just sign up for free and you're in → Illustration

Q23RQ

Expert-verified
Horngren'S Financial And Managerial Accounting
Found in: Page 1355

Short Answer

What is the biggest advantage of using RI to evaluate investment centers?

RI evaluates the division's profitability and how well it employs its average total assets. The goal rate of return set by senior management is also included in RI.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Residual Income

The residual income strategy measures the net income that investment makes at a cutoff determined by the investment's minimum rate of return. Companies can more successfully communicate assets between resources by computing residual income.

Step 2: The most significant advantage of using RI to evaluate investment centers

Utilizing residual pay to assess divisional execution includes a number of benefits, including the following:

  1. It considers the opportunity cost of tying up assets within the division;
  2. The least rate of return can change depending on the division's riskiness;
  3. Distinctive resources can be required to create different returns.

Most popular questions for Business-studies Textbooks

Icon

Want to see more solutions like these?

Sign up for free to discover our expert answers
Get Started - It’s free

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.