The performance of the manager of Division A is evaluated by residual income.Which of the following would improve the manager's performance?
A) Increase in average operating assets.
B) Decrease in average operating assets.
C) Increase in minimum required return.
D) Decrease in operating income.

Question

Quizplus · Accepted Answer

Residual income is calculated as the operating income minus the product of the minimum required return and the average operating assets. A decrease in average operating assets, while keeping other factors constant, would increase the residual income, thus improving the manager's performance.

The Performance of the Manager of Division a Is Evaluated