An advantage of the residual income measure over the return on investment measure is: residual income promotes goal congruence in decision making. comparability of divisions is enhanced with residual income. residual income uses net assets rather than gross assets as the investment base.

An advantage of the residual income measure over the return on investment measure is: residual income promotes goal congruence in decision making. comparability of divisions is enhanced with residual income. residual income uses net assets rather than gross assets as the investment base.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter9: Responsibility Accounting And Decentralization

Section: Chapter Questions

Problem 13MC: A responsibility center structure that considers investments made by the operating segments by using...

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Question

An advantage of the residual income measure over the return on investment measure is:

residual income promotes goal congruence in decision making.
comparability of divisions is enhanced with residual income.
residual income uses net assets rather than gross assets as the investment base.
residual income uses operating income before interest and taxes rather than net income.
Both 1 and 2 are correct.

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