Asked by Logan Machen on Jul 27, 2024
Verified
If net operating income is $39,000, average operating assets are $351,000, and the minimum required rate of return is 10%, what is the residual income?
A) $42,900
B) $31,200
C) $3,900
D) $35,100
Minimum Required Rate
The lowest rate of return that an investment must yield to be considered acceptable.
Residual Income
Income that continues to be generated after the initial effort has been expended, or in managerial accounting, the operating income that an investment center earns above the minimum required return on its operating assets.
- Grasp the use of residual income for evaluating performance metrics.
Verified Answer
AP
azmazazabilla paizonJul 29, 2024
Final Answer :
C
Explanation :
Residual income is calculated as the net operating income minus the product of the minimum required rate of return and the average operating assets. Here, it is $39,000 - (10% of $351,000) = $39,000 - $35,100 = $3,900.
Learning Objectives
- Grasp the use of residual income for evaluating performance metrics.
Related questions
If Net Operating Income Is $70,000, Average Operating Assets Are ...
The Following Data Has Been Provided for a Company's Most ...
Ibale Industries Is a Division of a Major Corporation ...
Brodrick Corporation Uses Residual Income to Evaluate the Performance of ...
The Excess of Divisional Income from Operations Over a Minimum ...