Question

Residual Income The income from operations and the amount of invested assets in each division of Beck Industries are as follows: Income from Operations Invested Assets Retail Division $97,200 $540,000 Commercial Division 67,200 420,000 Internet Division 167,200 760,000 Assume that management has established a 10% minimum acceptable return for inve a. Determine the residual income for each division. Retail Division Commercial Division Internet Division $167,200 $97,200 Income from operations Minimum acceptable income from operations as a percent of invested as Residual income b. Which division has the most residual income?

Answer 1

1. Formulas,
   1. Minimum acceptable income = Invested assets * 10%
   2. Residual value = Income from operations - minimum acceptable income.
2. Computation is as follows.
3. As per the below calculation, Internet division has the highest residual income.

4. Particulars	Retail Division	Commercial division	Internet division
   Income from operations	97,200	67,200	167,200
   Minimum acceptable income	54,000	42,000	76,000
   Residual Income	43,200	25,200	91,200