Question

Carter Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,110,000; sales of $4,535,000; cost of goods sold of $2,560,000; and operating expenses of $1,382,000. Assume a target income of 11% of average invested assets. Compute residual income for the division:

Answer 1

$1,83,000

Step-by-step explanation:

Sales = 4,535,000

Cost of goods sold = $2,560,000

Operating expenses = $1,382,000

Average total assets = $4,110,000

Net Income = Sales - Cost of goods sold - Operating expenses

= $4,535,000 - $2,560,000 - $1,382,000

= $5,93,000

Target income = 10% of Average total assets

= 0.10 × $4,110,000

= $410,000

Thus,

Residual income = Net income - Target income

= $5,93,000 - $410,000

= $1,83,000