15 HOMEWORK Saved Help Save & Exit Submit 4 Check my work 6 Exercise 15-15 Resid
ID: 2398034 • Letter: 1
Question
15 HOMEWORK Saved Help Save & Exit Submit 4 Check my work 6 Exercise 15-15 Residual income LO 15-7 Adams Cough Drops operates two divisions. The following information pertains to each division for 2018 nts Division A Division B Sales operating income Average operating assets Company s desired rate of return $213,eee $15,200 61,eee38e $9e,eee 8,8?? eBook 14% 14% Hint Print Required eferences a. Compute each division's residual income b. Which division increased the company's profitability more? Residual Income a. Division A Division EB b. The division that increased the company's profitability more is Mc K Prev6 of 6NextExplanation / Answer
Requirement (a) – Residual Income of Division A and Division B
Residual Income = Net Operating Income – [Average Operating Assets x Desired rate of return]
DIVISION - A
= $15,200 – [$61,000 x 14%]
= $15,200 – 8,540
= $ 6,660
DIVISION - B
= $8,800 – [$38,000 x 14%]
= $8,800 – 5,320
= $3,480
Requirement (b)
The Division that increased the company’s profitability more is “DIVISION – A”
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