Consider the following data from two divisions of a company, P and Q:
$\begin{array}{lrrrr}
\text { Divisional } &{\mathrm{P}} & \mathrm{Q} \
\text { Sales } & \$ 1,500,000 & \$ 1,000,000 \
\text { Operating Income } & \$ 600,000 & \$ 450,000 \
\text { Investment } & \$ 4,000,000 & \$ 2,750,000
\end{array}$
If the minimum rate of return is 11%, what is Division P's residual income (RI)?

Question

Consider the following data from two divisions of a company, P and Q:
$\begin{array}{lrrrr}
\text { Divisional } &{\mathrm{P}} &  \mathrm{Q} \
\text { Sales } & \$  1,500,000 & \$  1,000,000 \
\text { Operating Income } & \$  600,000 & \$  450,000 \
\text { Investment } & \$  4,000,000 & \$  2,750,000
\end{array}$
If the minimum rate of return is 11%, what is Division P's residual income (RI)?

Quizplus · Accepted Answer

Residual Income (RI) is calculated as Operating Income minus the product of the minimum rate of return and the investment. For Division P, RI = $600,000 - (11% of $4,000,000) = $600,000 - $440,000 = $160,000.

Consider the Following Data from Two Divisions of a Company