The following financial data are for the evaluation of performance for Far North Logging:
Average operating assets ..............................$800,000
Net operating income ...................................$ 92,000
Minimum required rate of return ...........................10%
Far North Logging currently uses ROI to evaluate investment centre managers. An accounting intern from the local university suggested to the controller that residual income may be a better performance measure.
REQUIRED
A. Calculate ROI for Far North Logging.
B. Calculate residual income for Far North Logging.
C. Write a brief memo to the controller, explaining why residual income is a better performance measure than ROI in this case.