The major advantage of residual income as a performance measure is that it gives consideration to not only a minimum rate of return on investment but also to the total magnitude of operating income earned by each division.

Question

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Residual income takes into account both the minimum rate of return on investment and the actual operating income earned by a division, making it a more comprehensive performance measure than just looking at one or the other.

The Major Advantage of Residual Income as a Performance Measure