Cabal Products is a division of a major corporation. Last year the division had total sales of $10,040,000, net operating income of $582,320, and average operating assets of $4,000,000. The company's minimum required rate of return is 14%. The division's residual income is closest to:
A)$582,320
B)$22,320
C)($823,280)
D)$1,142,320

Question

Quizplus · Accepted Answer

Residual income is calculated as net operating income minus the product of average operating assets and the minimum required rate of return. Here, it is $582,320 - ($4,000,000 * 14%) = $582,320 - $560,000 = $22,320.

Cabal Products Is a Division of a Major Corporation