A finished ACC-361 Topic 7 residual income comparison example, running one rejected project through ROI and residual income and pricing what the division's refusal costs the company. Searches like "acc 361 topic 7 assignment example", "acc361 topic 7 sample" and "acc-361 topic 7 example" land here.
What a finished ACC-361 Topic 7 residual income comparison looks like
The comparison starts from one division's figures, all illustrative: $2,000,000 of operating assets earning $400,000, a 20 percent return. A $500,000 project promises $75,000 a year, 15 percent, against a company minimum of 12 percent. Under ROI the division would fall to 19 percent if it accepted, so a manager paid on ROI rejects it, and the example shows that choice is rational given the measure. Residual income tells the other story. Charging 12 percent on the new assets leaves $15,000 a year of residual income, the amount the company loses each year the project stays rejected. The example then breaks ROI into margin and turnover, shows how net book value makes an aging asset base look steadily better, and names the behavior each measure rewards. It ends by proposing which measure the division should report.
How an ACC-361 Topic 7 example is structured
The example is arranged around one decision measured twice. It opens with the division's current position and the project on the table, stated in figures anyone can recompute. A second part computes ROI before and after the project and shows the manager's rejection following directly from the measure. Residual income comes third, using the same figures and the company's required rate, with the project's own contribution isolated. A fourth part prices the rejection as the residual income forgone and states it annually. The DuPont split follows, separating margin from turnover to show which lever the division has been pulling. A sixth part examines the asset base, explaining how depreciation shrinks the denominator and rewards postponing replacement. Last comes a recommended measure, with the manager it would apply to and the weakness residual income brings, its bias toward larger divisions.
One project measured two ways
The same $500,000 proposal is run through ROI and residual income, so the difference in the manager's answer comes entirely from the measure being applied.
The rejection shown as rational
The example does not treat the manager as careless; under an ROI bonus, refusing a 15 percent project in a 20 percent division is the sensible move.
What saying no costs the company
Residual income after the 12 percent charge puts a yearly price on the refused project, which turns an argument about measures into a figure.
Margin and turnover pulled apart
Splitting ROI into its two drivers shows whether the division earns its return through pricing and cost control or through a lean asset base.
An aging asset base flattering the ratio
Net book value falls every year, so ROI climbs on old equipment without any real improvement, and the example names that as an incentive to delay replacement.
Where marks go in ACC-361 Topic 7
Here the measure itself is under examination, and a paper earns its credit by saying what that measure does to a manager. Computing ROI and residual income correctly and then declaring one superior, with no decision run through both, shows arithmetic and no grasp of behavior. Treating the manager who rejects a profitable project as irrational misses the point, since the measure made rejection sensible. A paper that notes the conflict without pricing it leaves the company unsure what the measure is costing. Residual income recommended without any mention of its bias toward large divisions presents a trade-off as a free improvement. Where the rubric asks about the asset base, overlooking how net book value inflates ROI in older divisions omits the most common way the ratio misleads a head office reading it.
Get an ACC-361 Topic 7 example written to your instructions
Send the ACC-361 Topic 7 instructions, the rubric and the division or project figures your section supplied. We write a custom example to them, with one decision run through ROI and residual income, the rejected project priced, the ratio split into margin and turnover and each measure's incentive named, in 24 to 48 hours. The first one is free.
ACC-361 Topic 7 questions, answered
Why would a manager reject a project that beats the required rate?
Because the measure rewards the average, not the addition. A division already earning 20 percent lowers its ROI by accepting anything below 20 percent, even when the project clears the company's 12 percent minimum comfortably. A manager paid on ROI is acting rationally by refusing, and the example accordingly treats the problem as one of measure design rather than of judgment.
Is residual income always the better measure?
Not always. It removes the incentive to refuse projects above the required rate, but it favors larger divisions, since a bigger asset base can produce a bigger residual figure at the same underlying performance. Comparing divisions of different sizes on raw residual income is misleading, and many designs compare each division's result with its own target instead.
Where does economic value added fit in?
It is a refinement of residual income, usually applying the company's weighted average cost of capital to an adjusted measure of invested capital and after-tax operating profit. Some sections introduce it alongside residual income. The example mentions it where the instructions do, but the central comparison stays with ROI and residual income, since that is where the behavioral conflict is clearest.