The Axle Division of LaBate Company makes and sells only one product. Annual data on the Axle Division's single product follow:
$\begin{array}{|l|r|}
\hline \text { Unit Selling Price } & \$ 50 \
\hline \text { Unit Variable Cost } & \$ 30 \
\hline \text { Total Fixed Costs } & \$ 200,000 \
\hline \text { Average Operating Assets } & \$ 750,000 \
\hline \text { Minimum Required Rate of Return } & 12 \% \
\hline
\end{array}$
-If Axle sells 15,000 units per year,what would be the residual income?
A) $10,000.
B) $30,000.
C) $50,000.
D) $100,000.

Question

Quizplus · Accepted Answer

Residual income = Operating income - (Minimum required return * Average operating assets)= (Unit selling price * Units sold - Unit variable cost * Units sold - Total fixed costs) - (Minimum required return * Average operating assets)= (50 * 15,000 - 30 * 15,000 - 200,000) - (0.12 * 750,000)= (750,000 - 450,000 - 200,000) - 90,000= 100,000 - 90,000= $10,000

The Axle Division of LaBate Company Makes and Sells Only