The following information relates to last year's operations at the Bread Division of Rison Bakery Inc.: What was the Bread Division's minimum required rate of return last year?
A)12%
B)4%
C)15%
D)20%

Question

The following information relates to last year's operations at the Bread Division of Rison Bakery Inc.:  What was the Bread Division's minimum required rate of return last year?
A)12% 
B)4% 
C)15% 
D)20%

Quizplus · Accepted Answer

Residual income = Net operating income - (Average operating assets × Minimum required rate of return)
$12,000 = $60,000 - ($400,000 × Minimum required rate of return)
$400,000 × Minimum required rate of return = $60,000 - $12,000
$400,000 × Minimum required rate of return = $48,000
Minimum required rate of return = $48,000 ÷ $400,000 = 12%

The Following Information Relates to Last Year's Operations at the Bread