Residual income should be used to evaluate an investment center rather than a cost or profit center.

Question

Quizplus · Accepted Answer

Residual income is a measure of how effectively an investment center is using its capital to generate profits beyond its minimum required rate of return. Evaluating an investment center based on residual income provides a more comprehensive measure of its performance compared to a cost or profit center approach.

Residual Income Should Be Used to Evaluate an Investment Center