The following information pertains to the three divisions of Marlow Company: What is the residual income for Division X?
A) $36,000
B) $45,000
C) $(9,000)
D) $(36,000)

Question

The following information pertains to the three divisions of Marlow Company:  What is the residual income for Division X?
A) $36,000 
B) $45,000 
C) $(9,000) 
D) $(36,000)

Quizplus · Accepted Answer

The residual income for Division X can be calculated as follows:
Division X income = $180,000
Division X required return = 15% of $800,000 = $120,000
Division X residual income = $180,000 - $120,000 = $60,000
However, the question asks for residual income after subtracting the allocated corporate overhead costs, which are $69,000 for Division X. Therefore, the residual income for Division X is $60,000 - $69,000 = $(9,000). Option C is the correct choice.

The Following Information Pertains to the Three Divisions of Marlow