Asked by Widelyne Loiseau on Jul 30, 2024
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Residual income should be used to evaluate an investment center rather than a cost or profit center.
Residual Income
Income that remains after all operating expenses, including cost of capital, are subtracted from revenue, often used in performance measurement.
Investment Center
A business segment whose manager has control over cost, revenue, and investments in operating assets.
Cost Center
A department or segment of a business to which costs can be allocated but does not directly generate revenue.
- Gain insight into the theory and mathematics behind residual income.
- Distinguish between profit, cost, and investment centers in the context of responsibility and performance appraisal.
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Learning Objectives
- Gain insight into the theory and mathematics behind residual income.
- Distinguish between profit, cost, and investment centers in the context of responsibility and performance appraisal.
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