Question

Investment Center Cameras and camcorders Phones and communications Computers and accessories Net Income $6,450,000 1,750,000 950,000 Average Assets $ 25,700,000 12,500,000 10,600,000 Assume a target income of 14% of average invested assets. Required: What is the residual income for each division? (Enter losses with a minus sign.) Target Income Cameras and Camcorders P hones and Communications Computers and Accessories Targeted return Target income Residual Income Cameras and Camcorders Phones and Communications Computers and Accessories Residual income (loss)

Answer 1

• Target income	Cameras and camcorders	Phones and communications	Computer and accessories
  Average assets	25,700,000	12,500,000	10,600,000
  Target return	14%	14%	14%
  Target income	25,700,000 x 14% = 3,598,000	12,500,000 x 14% = 1,750,000	10,600,000 x 14% = 1,484,000
  Residual income	Cameras and camcorders	Phones and communications	Computer and accessories
  Net income (i)	6,450,000	1,750,000	950,000
  Target income (ii)	3,598,000	1,750,000	1,484,000
  Residual income (i) - (ii)	$2,852,000	$0	- $534,000

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