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My name is Ann [436]
3 years ago
15

Holo Company reported the following financial numbers for one of its divisions for the year; average total assets of $5,800,000;

sales of $5,375,000; cost of goods sold of $3,225,000; and operating expenses of $1,147,000. Assume a target income of 15% of average invested assets. Compute residual income for the division:a. $100,300.
b. $196,750.
c. $150,500.
d. $133,000.
e. $150,450
Business
1 answer:
kondaur [170]3 years ago
6 0

Answer:

Option D

Residual income= $133,000

Explanation:

<em>Residual Income is measure of how much a division or a part of a business is able to generate over and above the company-wide opportunity cost of capital.  </em>

<em>A division with a controllable profit over and margin over and above the cost of fund is evaluated to be profitable .  </em>

Residual income = Controllable margin - (cost of capital(%)× operating assets)  

cost of capital = target ROI = 15%

controllable profit= 5,375,000- 3,225,000- 1,147,000

                             = 1003000

Residual income =  1,003,000 -(15%×5,375,000)

                            = $133,000

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