Asked by Alexis Klein on Jun 13, 2024
Verified
How much is the residual income?
A) $80,000.
B) $50,000.
C) $40,000.
D) $10,000.
Traceable Fixed Expenses
Fixed costs that can be directly linked to a specific business segment, department, or product and would disappear if the segment was eliminated.
Variable Expenses
Costs that change in proportion to business activity or production volume, such as materials costs, direct labor, and utilities for machinery.
Minimum Required Rate Of Return
The lowest acceptable return on an investment, used as a benchmark for evaluating potential investments.
- Calculate the return on investment (ROI), residual income, and margin given financial data.
Verified Answer
FM
Fatin MiraaJun 16, 2024
Final Answer :
D
Explanation :
Residual income is calculated as operating income minus the product of the minimum required rate of return and the average operating assets. Operating income is sales minus variable and traceable fixed expenses, which is $400,000 - $100,000 - $250,000 = $50,000. The minimum required return on $200,000 at 20% is $40,000. Therefore, residual income is $50,000 - $40,000 = $10,000.
Learning Objectives
- Calculate the return on investment (ROI), residual income, and margin given financial data.