Required information [The following information applies to the questions display

Question

Required information [The following information applies to the questions displayed below.) Westerville Company reported the following results from last year's operations: Part 11 of 15 Sales $1,500,000 variable expenses 3000_ Contribution margin Fixed expenses Net operating income 770,000 470,000 $ 300,000 points eBook Average operating $ 937,500 assetS Print At the beginning of this year, the company has a $362,500 investment opportunity with the following cost and revenue characteristics: References $580,000 Sales Contribution margin ratio Fixed expenses saleS $319,000 The company's minimum required rate of return is 10%. 11. What is last year's residual income? esidua ncome

Explanation / Answer

11. Last year residual income :

Residual income = Actual operating income-Minimum operating income

                         = 300000-(937500*10%)

Residual income = 206250

12. Residual income of investment opportunity :

Residual income = Actual operating income-Minimum operating income

                         = 87000-(362500*10%)

Residual income = 50750

Actual operating income = (580000*70%-319000) = 87000

13. Residual income of last year with investment opportunity :

Residual income = Actual operating income-Minimum operating income

                        = 387000-(937500+362500)*10%

Residual income = 257000

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