Acc 3300 Exam 3

when using the ROI formula

NI / Avg operating assets
operating income is dividied by investment center assets

What does it mean when a business unit has a negative residual income

the business unit’s operating income is lower than the product of its investment base and minimum required rate of return

What will cause residual income to increase

decrease in minimum required rate if return on the asset

residual income is preferred over roi as a performance evaluation measure because

residual income concentrates on maximizing the amount of income rather than a percentage return as with roi