Cabell Products is a division of a major corporation. Last year the division had total sales of $25,320,000, net operating income of $1,924,320, and average operating assets of $6,000,000. The company's minimum required rate of return is 10%.The division's residual income is closest to:
A) $1,324,320
B) $2,524,320
C) $1,924,320
D) $(607,680)

Question

Quizplus · Accepted Answer

Residual income is calculated as net operating income minus the product of the minimum required rate of return and average operating assets. Here, it is $1,924,320 - (10% * $6,000,000) = $1,924,320 - $600,000 = $1,324,320.

Cabell Products Is a Division of a Major Corporation