Final answer:
The difference between a division's operating income and the imputed charge for the level of investment is known as Residual Income, which represents the excess profit after accounting for the opportunity cost of capital.
Step-by-step explanation:
The difference between a division's operating income and an imputed charge for the level of investment in the division is referred to as Residual Income. This concept is vital in performance measurement and management accounting. Residual income is used for assessing the performance of a division or investment center within a company. It is defined as the excess of operating income over the imputed charge, which represents the opportunity cost or the minimum required return on the division's assets.
To further understand the concept using an example: if a division has an operating income of $200,000 and the investment in the division is $1,000,000 with an imputed interest rate of 10%, the imputed charge would be $100,000 ($1,000,000 * 10%). The residual income would thus be $100,000 ($200,000 operating income - $100,000 imputed charge).