Essay
University Hospital provided the following income statement for two of its divisions: Diagnostic and Outpatient.Both divisions are structured as investment centers.
The average assets for Diagnostic and Outpatient divisions total $400,000 and $600,000,respectively.The required minimum rate of return for both divisions is 10%.
Required:
a.Calculate the current residual income for each division.
b.Why is residual income a better measure of performance for managers of investment centers than the overall profit compared to the flexible budget?
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