Niceville Company had sales of $400,000, variable costs of $200,000, and direct fixed costs totalling $100,000.The company's operating assets total $800,000, and its required return is 10%.How much is the residual income?

Question

Quizplus · Accepted Answer

Residual income is calculated as operating income minus the required return on operating assets. Operating income is sales minus variable and fixed costs, which is $400,000 - $200,000 - $100,000 = $100,000. The required return is 10% of $800,000, which is $80,000. Therefore, residual income is $100,000 - $80,000 = $20,000.

Niceville Company Had Sales of $400,000, Variable Costs of $200,000