Given the following information for Mako Company please answer the following questions: Sales $500,000 Turnover 3...
Given the following information for Mako Company please answer the following questions:
|
Sales |
$500,000 |
| Turnover |
3 |
|
Margin |
0.15 |
|
Desired Rate of Return |
20% |
What is the Residual Income?
Multiple Choice
-
$25,000.
-
$41,666
-
$66,667
-
$91,667
Homework Answers
Margin=Net operating income/Sales
Net operating income=(500,000*15%)=$75000
Turnover=Sales/Average operating assets
Average operating assets=(500,000/3)=$166,666.67(Approx)
Residual income=Net operating income-(Average operating assets*Desired rate of return)
=75000-(166,666.67*20%)
=$41,666(Approx).
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