The following information pertains to the three divisions of Marlow Company: $\begin{array}{lrrr}&\text { Division } X & \text { Division } Y & \text { Division } Z \
\text { Sales } & ? & ? & 1,250,000 \
\text { Net operating income } & £ 36,000 & £ 25,000 & £ 75,000 \
\text { Average operating assets } & 300,000 & ? & ? \
\text { Return on investment } & ? & 20 \% & 15 \% \
\text { Margin } & 0.10 & 0.05 & ? \
\text { Turnover } & 1.5 & ? & ? \
\text { Target ROI } & 15 \% & 12 \% & 10 \%
\end{array}$ What is the residual income for Division X?
A)£36,000
B)£45,000
C)£(9,000)
D)£(36,000)

Question

Quizplus · Accepted Answer

Residual Income (RI) is calculated as Net Operating Income - (Average Operating Assets * Target ROI). For Division X, RI = £36,000 - (300,000 * 15%) = £36,000 - £45,000 = £(9,000).

The Following Information Pertains to the Three Divisions of Marlow