The following information has been gathered for the Door Division:
$$\begin{array} { l r }
\text { Return on irvestrnent (ROI) } & 15.0 \% \
\text { Sales } & \$ 120,000 \
\text { Operating assets } & \$ 60,000 \
\text { Cost of Capital } & 12.0 \% \
\text { Profit margin } & 7.5 \%
\end{array}$$
What is the Door Division's residual income?
A) $1,800.
B) $2,700.
C) $3,600.
D) $5,400.

Question

The following information has been gathered for the Door Division:
$$\begin{array} { l r } 
\text { Return on irvestrnent (ROI) } & 15.0 \% \
\text { Sales } & \$ 120,000 \
\text { Operating assets } & \$ 60,000 \
\text { Cost of Capital } & 12.0 \% \
\text { Profit margin } & 7.5 \%
\end{array}$$
What is the Door Division's residual income?
A) $1,800.
B) $2,700.
C) $3,600.
D) $5,400.

Quizplus · Accepted Answer

Residual income = (ROI - Cost of Capital) * Operating Assets= (15% - 12%) * $60,000= 3% * $60,000= $1,800

The Following Information Has Been Gathered for the Door Division