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Dartford Company reported the following financial data for one of its divisions for the year; average investment center total assets of $3,600,000; investment center income $625,000; a target income of 12% of average invested assets. The residual income for the division is:

Question

Dartford Company reported the following financial data for one of its divisions for the year; average investment center total assets of 3,600,000;investmentcenterincome3,600,000; investment center income 625,000; a target income of 12% of average invested assets. The residual income for the division is:

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Solution

To calculate the residual income for the division, we first need to calculate the target income.

Step 1: Calculate the target income The target income is given as 12% of average invested assets. The average invested assets are 3,600,000.So,thetargetincomeis12/1003,600,000=3,600,000. So, the target income is 12/100 * 3,600,000 = 432,000.

Step 2: Calculate the residual income The residual income is the investment center income minus the target income. The investment center income is given as 625,000.So,theresidualincomeis625,000432,000=625,000. So, the residual income is 625,000 - 432,000 = 193,000.

Therefore, the residual income for the division is $193,000.

This problem has been solved

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