Question

Carter Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,240,000; sales of $4,665,000; cost of goods sold of $2,690,000; and operating expenses of $1,512,000. Assume a target income of 8% of average invested assets. Compute residual income for the division:

Answer 1

Residual income is $ 123,800.00

Step-by-step explanation:

The formula for residual income is given below:

Residual Income = operating income - (Required Return × Average Operating Assets)

The operating income=Sales-costs of goods sold-operating expenses

sales is $4,665,000

costs of good sold is $2,690,000

operating expenses of $1,512,000

operating income=$4,665,000-$2,690,000-$1,512,000

operating income=$463,000

residual income:

required return is 8%

average operating assets is $4,240,000

residual income=$463,000-($4,240,000*8%)

=$463,000-$339,200

=$123,800.00