Selected sales and operating data for three divisions of three different companies are given...

Question:

Selected sales and operating data for three divisions of three different companies are given below:

Division ADivision BDivision C
Sales$7,100,000$11,100,000$10,200,000
Average operating assets$1,420,000$2,775,000$2,040,000
Net operating income$440,200$1,132,200$351,900
Minimum required rate of return25%40.8%22%

1. Compute the return on investment for each division, using the formula stated in terms of margin and turnover.

2. Compute the residual income for each division.

Residual Income:

The residual income is the income left to a Company after deducting all other costs and liabilities that need to be settled. The residual income is the amount left that the Company has full control over its use.

Answer and Explanation: 1

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1.

Return on Investment = Net Operating Income / Average Operating Assets

Division A = 440,200 / 1,420,000 = 31%

Division B = 1,132,200 / 2,775,000...

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What Is Residual Income? - Definition, Model & Formula

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Chapter 6 / Lesson 20
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Understand what is residual income. Learn residual income definition and residual income formula. Know how to calculate residual income with examples.


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