Question

The North Division of XYZ Corporation had average operating assets of $1,110,000 and net operating income of $295,200 in January. The company uses residual income to evaluate the performance of its divisions, with a minimum required rate of return of 20%.

Required:
What was the North Division's residual income in January?

Answer 1

$73,200

Step-by-step explanation:

From the above details, we know that;

Residual income =

[Net operating income - (Average operating assets × minimum rate of return)]

= [$295,200 - ($1,110,000 × 20%)]

= [$295,200 - $222,000]

= $73,200

Therefore, the North division's residual income in January is $73,200