Using the following information, calculate the residual profit.
Sales $500 000
Profit 40 000
Average operating assets 180 000
Shareholders' equity 50 000
Minimum required rate of return 15%

Question

Quizplus · Accepted Answer

Residual profit is calculated as actual profit minus the minimum required return on average operating assets. The minimum required return is 15% of $180,000, which is $27,000. The residual profit is $40,000 (actual profit) - $27,000 (minimum required return) = $13,000.

Using the Following Information, Calculate the Residual Profit