The Labrador Falls Company has three divisions: A Division,B Division,and C Division.$\begin{array}{|l|r|r|r|}
\hline & \text { A } & \text { B } & \text { c } \
\text { Sales }& \$ 320,000 & \$ 540,000 & ?\
\hline \text { Net operating income } & 60,000 & ? & \$ 24,000 \
\hline \text { Residual income }& ? & 36,000 & 14,400 \
\hline \text { Average Division } \
\text { Assets } & 250,000 & 320,000 & 80,000 \
\hline \text { Cost of Capital } & 12 \% & 16 \% & \
\hline \text { Profit Margin } & 20 \% & 5 \% & \
\text { Asset Turnover } & ? & 4.0 & \
\hline \text { Return on irwestment } & 15 \% & & \
\hline
\end{array}$What was A Division's residual income last year?
A) $12,000.
B) $22,500.
C) $30,000.
D) $48,000.

Question

The Labrador Falls Company has three divisions: A Division,B Division,and C Division.$\begin{array}{|l|r|r|r|}
\hline  & \text { A } & \text { B } & \text { c } \
\text { Sales }& \$ 320,000 & \$ 540,000 & ?\
\hline \text { Net operating income }  & 60,000 & ? & \$ 24,000   \
\hline \text { Residual income }& ? & 36,000 & 14,400  \
\hline \text { Average Division }  \
 \text { Assets } & 250,000 & 320,000 & 80,000 \
\hline \text { Cost of Capital } & 12 \% & 16 \% & \
\hline \text { Profit Margin } & 20 \% & 5 \% & \
\text { Asset Turnover } & ? & 4.0 & \
\hline \text { Return on irwestment } & 15 \% & & \
\hline
\end{array}$What was A Division's residual income last year? 
A) $12,000.
B) $22,500.
C) $30,000.
D) $48,000.

Quizplus · Accepted Answer

A Division's net operating income is $60,000, and its average division assets are $250,000. The cost of capital is 12%. So, the required return on investment is $250,000 * 12% = $30,000. Therefore, A Division's residual income is $60,000 - $30,000 = $30,000.

The Labrador Falls Company Has Three Divisions: a Division,B Division,and