Gant Manufacturing Company has provided the following financial information: $$\begin{array} { l r }
\text { Sales } & \$ 400,000 \
\text { Variable Expenses } & \$ 250,000 \
\text { Fixed Expenses } & \$ 50,000 \
\text { Investment in Fixed Assets } & \$ 300,000 \
\text { Required Rate of Ret urn } & 5 \%
\end{array}$$ What is Gant's residual income?
A)$80,000.
B)$95,000.
C)$100,000.
D)$85,000.
E)None of the above.

Question

Gant Manufacturing Company has provided the following financial information: $$\begin{array} { l r } 
\text { Sales } & \$ 400,000 \
\text { Variable Expenses } & \$ 250,000 \
\text { Fixed Expenses } & \$ 50,000 \
\text { Investment in Fixed Assets } & \$ 300,000 \
\text { Required Rate of Ret urn } & 5 \%
\end{array}$$ What is Gant's residual income?
A)$80,000.
B)$95,000.
C)$100,000.
D)$85,000.
E)None of the above.

Quizplus · Accepted Answer

Residual income is calculated as Net Operating Income minus the product of the Required Rate of Return and Investment in Fixed Assets. Net Operating Income is Sales minus Variable and Fixed Expenses: $400,000 - $250,000 - $50,000 = $100,000. The required return is 5% of $300,000, which is $15,000. Thus, Residual Income is $100,000 - $15,000 = $85,000.

Gant Manufacturing Company Has Provided the Following Financial Information What Is Gant's Residual Income? A)$80,000

Gant Manufacturing Company Has Provided the Following Financial Information What Is Gant's Residual Income?
A)$80,000