Asked by Aparna Narayanan on Jul 24, 2024
Verified
Residual income should be used to evaluate an investment center rather than a cost or profit center.
Residual Income
The net operating income that an investment center earns above the minimum required return on its operating assets.
Investment Center
A business segment whose manager has control over cost, revenue, and investments in operating assets.
Cost Center
A business segment whose manager has control over cost but has no control over revenue or investments in operating assets.
- Comprehend the use and significance of residual income and return on investment (ROI) in evaluating investment centers.
Verified Answer
Learning Objectives
- Comprehend the use and significance of residual income and return on investment (ROI) in evaluating investment centers.
Related questions
If a Company Contains a Number of Investment Centers of ...
A Cost Center Is a Responsibility Center
Suppose a Company Evaluates Divisional Performance Using Both ROI and ...
ROI and Residual Income Are Tools Used to Evaluate Managerial ...
Residual Income Is the Difference Between Net Operating Income and ...