Answer:
Please see the detailed solution below:
Explanation:
Solution 1:
Average Operating Assets = (Beginning Operating Assets + Ending Operating Assets) / 2
Average Operating Assets = ($1,850,000 + $1,890,000) / 2
Average Operating Assets = $3,740,000 / 2
Average Operating Assets = $1,870,000
Solution 2:
Margin = Net Operating Income / Sales
Margin = $589,050 / $3,927,000
Margin = 0.15 i.e., 15%
Turnover = Sales / Average Operating Assets
Turnover = $3,927,000 / $1,870,000
Turnover = 2.1
Return on Investment = Margin x Turnover
Return on Investment = 15% x 2.1
Return on Investment = 31.5%
Solution 3:
Residual Income = Net Operating Income - (Minimum Required Rate of Return x Average Operating Assets)
Residual Income = $589,050 - (15% x $1,870,000)
Residual Income = $589,050 - $280,500
Residual Income = $308,550
