A disadvantage to using the residual income performance measure is that it encourages managers to spend only the minimum acceptable rate of return on assets set by upper management.

Question

Quizplus · Accepted Answer

The statement is false. The residual income measure encourages managers to earn a return on assets that exceeds the minimum acceptable rate set by upper management. This is because the measure subtracts the required rate of return from the actual rate of return earned, and managers are incentivized to increase this difference (i.e., generate more residual income) by earning a rate of return that exceeds the required minimum.

A Disadvantage to Using the Residual Income Performance Measure Is