The following information pertains to the three divisions of Merrymount Company: $\begin{array}{lrrr}&\text { Division } X& \text { Division } Y& \text { Division } Z\
\text { Sales } & ? & ? & 1,250,000 \
\text { Net operating income } & \$ 36,000 & \$ 25,000 & \$ 7,000 \
\text { Average operating assets } & 300,000 & ? & ? \
\text { Retum on investment } & ? & 20 \% & 15 \% \
\text { Margin } & 0.10 & 0.05 & ? \
\text { Turnover } & 1.5 & ? & ? \
\text { Target ROI } & 15 \% & 12 \% & 10 \%
\end{array}$ What is the residual income for Division X?
A)$36,000
B)$45,000
C)$(9,000)
D)$(36,000)

Question

Quizplus · Accepted Answer

Residual income is calculated as Net Operating Income - (Average Operating Assets * Target ROI). For Division X, this is $36,000 - ($300,000 * 15%) = $36,000 - $45,000 = $(9,000).

The Following Information Pertains to the Three Divisions of Merrymount