Calculating Residual IncomeEast Mullett Manufacturing earned operating income last year as shown in the following income statement:Sales$3,750,000Cost of goods sold2,250,000Gross margin$1,500,000Selling and administrative expense1,200,000Operating income$ 300,000Less: Income taxes (@ 40%)120,000 Net income$ 180,000At the beginning of the year, the value of operating assets was $1,600,000. At the end of the year, the value of operating assets was $1,400,000.East Mullett requires a minimum rate of return of 5%.What is the residual income?

Introduction:- Computations of operating assets as follows:- Average operating assets = (Beginning…

Answered: East Mullett Manufacturing earned…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter11: Performance Evaluation And Decentralization

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Calculating Residual Income

East Mullett Manufacturing earned operating income last year as shown in the following income statement:

Sales	$3,750,000
Cost of goods sold	2,250,000
Gross margin	$1,500,000
Selling and administrative expense	1,200,000
Operating income	$ 300,000
Less: Income taxes (@ 40%)	120,000
Net income	$ 180,000

At the beginning of the year, the value of operating assets was $1,600,000. At the end of the year, the value of operating assets was $1,400,000.

East Mullett requires a minimum rate of return of 5%.

What is the residual income?

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