Abbe Company reported the following financial numbers for one of its divisions f

Question

Abbe Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,180,000; sales of $4,605,000; cost of goods sold of $2,630,000; and operating expenses of $1,452,000. Assume a target income of 9% of average invested assets. Compute residual income for the division:

$146,800.

$156,800.

$104,300.

$177,750.

$47,070.

Abbe Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,180,000; sales of $4,605,000; cost of goods sold of $2,630,000; and operating expenses of $1,452,000. Assume a target income of 9% of average invested assets. Compute residual income for the division:

Explanation / Answer

Residual Income :-

Residual income is the amount of money left over after necessary expenses and costs have been paid for a period. This is that income which come after deducting all the operating expenses and the desire return on assets.

So in this case residual income =

Sales= 4605000

Less: - Cost of Goods Sold= 2630000

Less:- Operating Expenses = 1452000

Less:- Average investment target return = (4180000* 9%)376200

Now Residual Income :- 146800

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