Question

Investment Center Net Income Average Assets Cameras and camcorders $5,150,000 $24,800,000 Phones and communications 1,812,000 15,100,000 Computers and accessories 1,000,000 13,800,000 Assume a target income of 12% of average invested assets. Required: Compute residual income for each division.

Answer 1

Answer:

Cam residual income 2,174,000

Phone residual loss       617,000

Explanation:

The residual income is the difference between the required return on asset and the net income.

First step is to calcualte the required return on the asset

we multiply each division assets by 12%

then, we compare with the net income to get the residual income.

$\left[\begin{array}{ccc}& Cam& Phone\\ Assets&24,800,000&13,800,000\\ required return&2,976,000&1,656,000\\ net income&5,150,000&1,000,000\\ residual income&2,174,000&-656,000\\\end{array}\right]$