When a company is comparing the financial performance of various divisions, it may choose to focus on RI as opposed to ROI because using RI tends to lead toward goal congruence between the division and the corporation.

Question

Quizplus · Accepted Answer

Focusing on RI (Residual Income) instead of ROI (Return on Investment) can lead to goal congruence between the division and the corporation because RI measures the amount of income generated above a minimum required rate of return, whereas ROI only measures the return on the investment without considering the minimum required rate of return. By using RI, the division is encouraged to generate more income than the minimum required rate of return, which benefits both the division and the corporation.

When a Company Is Comparing the Financial Performance of Various