Since residual income (RI) is not a percentage, it is not very useful for:
A) Comparing business units of significantly different size.
B) Evaluating the performance of subunits with high ROIs.
C) Motivating goal-congruent behavior on the part of divisional managers.
D) Evaluating the short-term financial performance of small divisions.
E) Evaluating the short-term financial performance of larger divisions.

Question

Quizplus · Accepted Answer

Since RI is an absolute measure of profitability and not a percentage, it cannot be used to compare or evaluate the financial performance of business units of significantly different sizes. A more appropriate measure in such cases would be return on investment (ROI), which is a percentage-based measure.

Since Residual Income (RI) Is Not a Percentage, It Is