Points will not be given for half solutions or incorrect ones. I want step by st
ID: 2374422 • Letter: P
Question
Points will not be given for half solutions or incorrect ones. I want step by step explnations for all qustions.
1. The following information is available for Aggie Auto Sales:
Average operating assets $500,000
Controllable margin 50,000
Contribution margin 125,000
Minimum rate of return 8%
How much is Aggie Auto%u2019s residual income?
2. Niceville Company had sales of $400,000, variable costs of $200,000, and direct fixed costs totaling $100,000. The company%u2019s operating assets total $800,000, and its required return is 10%. How much is the residual income?
3. Oxford Company earned controllable margin of $250,000 on sales of $3,200,000. The division had average operating assets of $2,600,000. The company requires a return on investment of at least 8%. How much is residual income?
Explanation / Answer
1. Residual Income
= Controllable Income - ( Average Operating Assets * Minimum rate of return)
= 50,000 - (500,000 * 8 %)
= 50,000 - 40,000
= $ 10,000
2.
Net Income
= Sales - Variable Costs - Direct Fixed Costs
= 400,00 - 200,000 - 100,000
= $ 100,000
Residual Income
= Net Income - - ( Average Operating Assets * Minimum rate of return)
= 100,000 - (800,000 * 10 %)
= 100,000 - 80,000
= $ 20,000
3.
Residual Income
= Controllable Income - ( Average Operating Assets * Minimum rate of return)
= 250,000 - (2,600,000 * 8 %)
= 250,000 - 208,000
= $ 42,000
Feel free to leave comment for any questions upon this solution. It will be my pleasure for assistance.