Question

avocado company has an operating income of $104,000 on revenues of $1,091,000. average invested assets are $500,000 and avocado company has an 8ost of capital. what is the residual income?

Answer 1

The residual income for Avocado Company is calculated by subtracting the product of average invested assets and cost of capital from the operating income, which results in $64,000.

Step-by-step explanation:

The student is asking for the calculation of residual income, which is a concept in finance and managerial accounting that refers to the net operating income earned beyond the minimum rate of return. Residual income is calculated by taking the operating income and subtracting the product of the average invested assets and the cost of capital (expressed as a percentage). In this case, the Avocado Company's operating income is $104,000, the average invested assets are $500,000, and the cost of capital is 8%.

To calculate the residual income, we perform the following steps:

Subtract this value from the operating income to find the residual income:
$104,000 - $40,000 = $64,000.

Therefore, the Avocado Company's residual income is $64,000.