Residual Income Weakness

Residual Income Weakness - to generate $460,000 of...

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RESIDUAL INCOME WEAKNESS It might appear from the above discussion that the goal of any company should be to maximize the  total amount of residual income in each division. This goal, however, ignores the fact that one  division might use substantially fewer assets to attain the same level of residual income as another  division. For example, we know that to produce Tracker, the Electronics Division of Pujols  Manufacturing used $2,000,000 of average operating assets to generate $260,000 of controllable  margin. Now let's say a different division produced a product called SeaDog, which used $4,000,000 
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Unformatted text preview: to generate $460,000 of controllable margin, as shown in Illustration 21A-5 . Illustration 21A-5 Comparison of two products If the performance of these two investments were evaluated using residual income, they would be considered equal: Both products have the same total residual income. This ignores, however, the fact that SeaDog required twice as many operating assets to achieve the same level of residual income....
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This note was uploaded on 11/08/2011 for the course ACCOUNTING ac 202 taught by Professor - during the Fall '11 term at Montgomery.

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