The performance of the manager of Ottawa Division is measured by residual income. Which of the following would decrease the manager’s performance measure? A. Increase in amount of return on investment desired.
B. Increase in sales.
C. Increase in contribution margin.
D. Decrease in required rate of return.

A. Increase in amount of return on investment desired

Explanation:

The residual income is a superior measure  to return on investment of he performance of a division and its manger.

Residual income is the excess of the net income of a division over the opportunity cost of the capital invested into operating the assets of the division.

Residual income = Net income - (Required rate of return × Operating assets)

For example, lets consider the following data

Net income = 300,000

Assets = 500,000

Required rate of return = 10%

Residual income = 300,000 - (10% × 500,000) = 250,000

If the require rate of return is increased to 15%, then will reduce to

Residual income= 300,000 - (15% × 500,000) = 225,000

In the options given, an increase in the amount of require rate of return would decrease performance while others would increase it

Answer :A. Increase in amount of return on

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