Accounting · Management Accounting
Which of the following represents a significant disadvantage of using Residual Income (RI) rather than Return on Investment (ROI) as a financial performance measure for divisional managers?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1It makes direct comparison between divisions of significantly different sizes difficult.✓
- 2It cannot be calculated if a division experiences an accounting net loss.
- 3It is completely unrelated to the Net Present Value (NPV) of projects.
- 4It makes divisional managers aware of the absolute cost of financing their activities.
Correct answer
It makes direct comparison between divisions of significantly different sizes difficult.
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