Quincy Corp. earned controllable margin of $500,000 on sales of $6,400,000. The division had average operating assets of $5,200,000. The company requires a return on investment of at least 8%. How much is residual income?

Question

Quizplus · Accepted Answer

Residual income is calculated as the controllable margin minus the product of the required rate of return and the average operating assets. Here, it's $500,000 - (8% of $5,200,000) = $500,000 - $416,000 = $84,000.