Division A has generated sales revenue of $22,700,000 and achieved operating income of $265,000 using $1,500,000 of invested assets.If the management desires a minimum rate of return of 12% on the invested assets, Division A's residual income would be:
A) $85,000.
B) $52,500.
C) $81,500.
D) $38,000.

Question

Quizplus · Accepted Answer

Residual income is calculated as the operating income minus the product of the minimum required rate of return and the invested assets. Here, it's $265,000 - (12% of $1,500,000) = $265,000 - $180,000 = $85,000.

Division a Has Generated Sales Revenue of $22,700,000 and Achieved