Lew Co. had sales of $400,000, variable costs of $200,000, and direct fixed costs totaling $100,000. The company's operating assets total $800,000, and its required return is 10%. How much is the residual income?
A) $120,000
B) $20,000
C) $80,000
D) $320,000

Question

Quizplus · Accepted Answer

Residual income is calculated as net operating income minus the product of the required return rate and operating assets. First, calculate the net operating income: Sales ($400,000) - Variable Costs ($200,000) - Direct Fixed Costs ($100,000) = $100,000. Then, calculate the required return: 10% of $800,000 = $80,000. Finally, subtract the required return from the net operating income: $100,000 - $80,000 = $20,000.

Lew Co Had Sales of $400,000, Variable Costs of $200,000, and and Direct