Which of the following statements MOST accurately describes residual income?
A) How efficiently a division uses its average assets to generate sales
B) How much operating income the division earns on every dollar of sales
C) How much return a division generates on average assets
D) How much extra income does a division generate above the minimum acceptable level

Question

Quizplus · Accepted Answer

Residual income is the profit a division or business unit generates above the minimum acceptable level of return or cost of capital. It measures the amount of extra income a unit generates after covering its operating expenses and capital costs. Therefore, option D is the most accurate description of residual income. Option A refers to asset turnover, option B refers to operating margin, and option C refers to return on assets.

Which of the Following Statements MOST Accurately Describes Residual Income