Using residual income as a measure of performance rather than return on investment promotes goal congruence because residual income:
A)places importance on the reduction of underperforming assets.
B)concentrates on maximising an absolute amount of dollars.
C)calculates a percentage return rather than an absolute return.
D)concentrates on maximising the return on sales.

Question

Quizplus · Accepted Answer

Residual income focuses on maximizing an absolute dollar amount rather than a percentage return, aligning the interests of managers with those of the company as a whole by encouraging the pursuit of projects that generate more income over the cost of capital, regardless of the impact on the percentage return metrics.

Using Residual Income as a Measure of Performance Rather Than