Answer:
Residua income = $80,000
Explanation:
<em>Residual income is the excess of the controllable profit over the opportunity cost of capital invested. </em>
<em>It is used to evaluate the financial performance of a division or department.
</em>
<em>The a positive residual value indicate a good performance, hence the higher the residual value the better
</em>
It is computed as follows:
Residual income = Controllable profit - (cost of capital× operating assets)
Controllable profit = 560,000,
Interest on capital = × 12% × 4,000,000 = 480,000
Residual income = 560,000 - 480,000= 80,000
Residua income = $80,000