Question

Oriole Company had sales of $392000, variable costs of $192000, and direct fixed costs totaling $97000. The company’s operating assets total $809000, and its required return is 10%. How much is the residual income?

Answer 1

Answer:

Residual Income = $ 22,100

Explanation:

Residual income is the excess of the controllable profit over the opportunity cost of capital invested.

It is computed as follows:

Residual income = Controllable profit - (cost of capital× operating assets)

Controllable profit = 392,000 - 192,000- 97,000 = $103,000

Residual income =  103,000 - (10%× 809,000)= 22,100

Residual Income = $ 22,100