Question

residual income is determined as :

income times the asset turnover rate

income times the inventory turnover rate

Income minus asset base times target rate of return

sales minus asset base times target rate of return

Answer 1

answer : income minus asset base times target rate of return

explanation

1) Residual rate of return is determined as income minus asset base times target rate of return

2) residual income explains the relationship between the income and target return

3) residual income is the excess of income over the target rate of return

3) it is the best method for measuring the profitability of the divisions or products than return on investment

4) it is generally calculated as follows

residual income = income - (average operating assets * target rate of return )