The following forecasted information is available for a manufacturing division f

Question

The following forecasted information is available for a manufacturing division for next year: Amount (thousands S 1,800 30,000 17,200 Catego Working capital Revenue Plant and equipment To establish a standard of performance for the division's manager using the residual income approach, four scenarios are being considered Imputed Interest 15% 12% 18% 10% Target Residual Income $2,000,000 1,500,000 1,250,000 2,500,000 Which scenario assumes the lowest maximum cost? A. Scenario 4 OB. Scenario 1 C. Scenario 3 Scenario 2 D.

Explanation / Answer

Lowest maximum cost would be in scenario 4.

scenario 1 - $27730

scenario 2 - $ 28284

scenario 3 - $ 28426

scenario 4 - $ 27320

least Maxmium cost would be $ 27320

Option A is correct.

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