Question

Dartford Company reported the following financial data for one of its divisions for the year; average investment center total assets of $3,500,000; investment center income $610,000; a target income of 12% of average invested assets. The residual income for the division is:

Answer 1

Answer:

The residual income of this division is $190,000

Explanation:

Formula of the computation is;

Residual income = Operating income - (minimum rate of return x average total assets)

Based on the above-mentioned example, the computation is;

Residual income = $610,000 - (12% x $3,500,000)

= $610,000 - $420,000

=$190,000 (answer)

•Residual income is the amount in excess of the minimum required rate of return or the desired income of the conpany.