Q22RQ - Horngren'S Financial And Managerial Accounting

Question

What does RI measure?

Step-by-Step Solution

Answer

RI or Residual income measures excess of operating income over minimum acceptable income

Step 1: Meaning of RI

The residual income strategy measures the net income that investment makes at a cutoff determined by the investment's minimum rate of return.

Step 2: Explanation on RI

Companies can more successfully communicate assets between resources by computing residual income. A positive RI indicates that the business has outperformed its lowest rate.