Dellarte Corporation has two major divisions-Agricultural Products and Industrial Products.It provides the following information for the year. $$\begin{array} { | l | r | r | }
\hline & \text { Agriculture Division } & \text { Industrial Division } \
\hline \text { Net sales } & \$ 160,000 & \$ 1,250,000 \
\hline \text { Operating income } & \$ 47,000 & \$ 225,000 \
\hline \text { Average assets } & \$ 310,000 & \$ 5,580,000 \
\hline \text { Target rate of return } & 10.0 \% & 12.0 \% \
\hline
\end{array}$$ Calculate the residual income for the Agriculture Division.

Question

Dellarte Corporation has two major divisions-Agricultural Products and Industrial Products.It provides the following information for the year. $$\begin{array} { | l | r | r | } 
\hline & \text { Agriculture Division } & \text { Industrial Division } \
\hline \text { Net sales } & \$ 160,000 & \$ 1,250,000 \
\hline \text { Operating income } & \$ 47,000 & \$ 225,000 \
\hline \text { Average assets } & \$ 310,000 & \$ 5,580,000 \
\hline \text { Target rate of return } & 10.0 \% & 12.0 \% \
\hline
\end{array}$$ Calculate the residual income for the Agriculture Division.

Quizplus · Accepted Answer

Residual income is calculated as Operating Income - (Average Assets * Target Rate of Return). For the Agriculture Division, it's $47,000 - ($310,000 * 10%) = $47,000 - $31,000 = $16,000.

Dellarte Corporation Has Two Major Divisions-Agricultural Products and Industrial Products