The major advantage of residual income as a performance measure is that it gives consideration to not only a minimum 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 required rate of return on investment and the actual operating income, allowing for a comprehensive assessment of a division's performance by considering the excess income generated over the minimum required return.

The Major Advantage of Residual Income as a Performance Measure