Question

Residual Income The operating income and the amount of invested assets in each division of Conley Industries are as follows: Operating income Invested Assets Retail Division $77,400 $430,000 630,000 Commercial Division 126,000 Internet Division 173,800 790,000 Assume that management has established a 8% minimum acceptable return for invested assets. a. Determine the residual income for each division Retail Division Commercial Division Internet Division Operating income $77,400 $126,000 $173,800 Minimum acceptable operating income as a percent of invested assets Residual income b. Which division has the most residual income?

Answer 1

Answer

--Requirement [a]

		Retail Division	Commercial Division	Internet Division
A	Operating Income	$77,400	$126,000	$173,800
B	Minimum acceptable operating income as a % of invested assets (Invested assets x 8%)	$34,400	$50,400	$63,200
C = A - B	Residual Income	$43,000	$75,600	$110,600

--Requirement [b]

INTERNET DIVISION has most Residual Income.