Economics · Management Accounting
A division's performance is measured using Residual Income (RI). The division has a controllable profit of $250,000 and capital employed of $1,000,000. The imputed interest charge is 10%. The manager is considering a new project that will increase capital employed by $200,000 and generate a profit of $25,000. Should the manager accept the project based on RI?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1No, because the project's return on investment is lower than the division's.
- 2Yes, because the project's return on investment is positive.
- 3No, because the new RI will be lower.
- 4Yes, because the new RI will be higher.✓
Correct answer
Yes, because the new RI will be higher.
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