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Sand Company had sales of $400,000, variable costs of
$200,000, and direct fixed costs totaling $100,000. The
company's operating assets total $800,000, and its
required return is 10%. How much is the residual income?
O $120,000
O $80,000
O $20,000
O $320,000
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Next > < Prev Question 1 -/1 View Policies Current Attempt in Progress ort Sand Company had sales of $400,000, variable costs of $200,000, and direct fixed costs totaling $100,000. The company's operating assets total $800,000, and its required return is 10%. How much is the residual income? O $120,000 O $80,000 O $20,000 O $320,000

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Expert Answer

Step 1

Residual income:

 

It is an amount by which an operating income (earnings) exceeds a minimum acceptable return on the average capital invested.

Step 2

Determine the residual income of ...

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Residual income =Operating income- Minimum required return (Sales - Variable costs – Fixed costs) (Operating assets × Required return) =(S400,000 – S200, 000 – $100,000) – (S800,000×10%) =S20,000

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