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Chapter 24: 18E (page 1361)

Refer to the data in Exercise E24-17. Calculate each division鈥檚 RI. Interpret your results.

Short Answer

Expert verified

The residual income of Residential is $15,360 and for professionals is $60,300. Both the divisions have positive residual income.

Step by step solution

01

Computation of residual income

Residential'sofResidualIncome=OperatingIncome-(Averagetotalassets脳Minimumrequiredrateofreturn)=65,280-(192,000脳26%)=$15,360

Professional'sResidualIncome=OperatingIncome-(Averagetotalassets脳Minimumrequiredratesofreturn)=164,820-(402,000脳26%)=$60,300

02

Interpretation of results 

As computed in step 1 it is clearly visible both the divisions have positive residual income. This means that the division are income at the rate that is more than the expectations of the management鈥檚 minimum expectations.

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Most popular questions from this chapter

What is a responsibility center?

Classify each key performance indicator according to the balancedscorecard perspective it addresses. Choose from the following: financialperspective, customer perspective, internal business perspective, or learning andgrowth perspective.

9. Number of repeat customers

10. Employee turnover

11. Revenue growth

12. Number of on-time deliveries

13. Number of defects found during the manufacturing process

Consider the following data, and determine which of the corporate divisions is more profitable. Explain your reasoning.

Domestic International

Operating income \( 10,000,000 \) 11,000,000

Average total assets 24,000,000 32,000,000

What does RI measure?

Question:The accountant for a subunit of Speed Sports Company went on vacation before completing the subunit鈥檚 monthly responsibility report. This is as far as she got:

Speed鈥擲ubunit X Revenue by Product Actual Results Flexible Budget Variance Flexible Budget Sales Volume Variance Static Budget

Downhill-RI \( 321,000 (a) (b) \) 17,000 F \( 295,000

Downhill-RII 151,000 (c) \) 161,000 (d) 145,000

Cross-EXI 285,000 \( 3,000 U 288,000 (e) 303,000

Cross-EXII 259,000 (f) 255,000 16,500 U 271,500

Snow-LXI 425,000 2,000 F (g) (h) 404,000

Total \) 1,441,000 (i) (j) (k) \( 1,418,500

Requirements

1. Complete the responsibility report for this subunit.

2. Based on the data presented, what type of responsibility center is this subunit?

3. Which items should be investigated if part of management鈥檚 decision criteria is to investigate all variances exceeding \)12,000?
See all solutions

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