Assume that divisional income from operations amounts to $215,000 and top management has established 15% as the minimum rate of return on divisional assets totaling $1,000,000.The residual income for the division is
A) $65,000
B) $215,000
C) $635,000
D) $150,000

Question

Quizplus · Accepted Answer

Residual income is calculated as the divisional income from operations minus the minimum required rate of return on divisional assets.

Residual Income = Divisional Income from Operations - (Minimum Rate of Return x Divisional Assets)

Residual Income = $215,000 - (0.15 x $1,000,000)

Residual Income = $215,000 - $150,000

Residual Income = $65,000

Therefore, the residual income for the division is $65,000, which is option A.

Assume That Divisional Income from Operations Amounts to $215,000 and Top