Why:
Residual income is measured in dollar amounts rather than percentages. It relates the income earned to the minimum required return on investment and overcomes the tendency for managers to turn down profitable projects that might lower divisional ROI.
Required:
1. Calculate residual income for the Snack Foods Division.
2. Calculate residual income for the Appliance Division.
3. What if the minimum required rate of return was 16 percent? How would that affect the residual income of the two divisions?