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Math  /  Data & Statistics

QuestionWhat was the Commerclal Products Dimision's residual income in January?
Mutiple Choice $7.900\$ 7.900 \$20118 (\$7.900) (\$20.N8)

Studdy Solution

STEP 1

1. The minimum required rate of return is 14%.
2. The division's average operating assets are \$970,000.
3. The net operating income is \$143,700.
4. Residual income is calculated as net operating income minus the product of the minimum required rate of return and average operating assets.

STEP 2

1. Calculate the minimum required return.
2. Calculate the residual income.
3. Compare the calculated residual income with the multiple-choice options.

STEP 3

Calculate the minimum required return using the formula:
Minimum Required Return=Minimum Required Rate of Return×Average Operating Assets\text{Minimum Required Return} = \text{Minimum Required Rate of Return} \times \text{Average Operating Assets}
Substitute the given values:
Minimum Required Return=0.14×970,000\text{Minimum Required Return} = 0.14 \times 970,000
Calculate:
Minimum Required Return=135,800\text{Minimum Required Return} = 135,800

STEP 4

Calculate the residual income using the formula:
Residual Income=Net Operating Income−Minimum Required Return\text{Residual Income} = \text{Net Operating Income} - \text{Minimum Required Return}
Substitute the given values:
Residual Income=143,700−135,800\text{Residual Income} = 143,700 - 135,800
Calculate:
Residual Income=7,900\text{Residual Income} = 7,900

STEP 5

Compare the calculated residual income with the multiple-choice options:
The calculated residual income is \$7,900, which matches the option:
$7,900\$7,900
The correct answer is:
$7,900 \boxed{\$7,900}

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