Presented below is information related to the Annandale Division of Lumber, Inc. Contribution margin $1,211,900 Controllable margin $895,180 Average operating assets $4,069,000 Minimum rate of return 15 % Compute the Annandale Division's residual income. $284,830 895,180 $150,000 $162,760
Presented below is information related to the Annandale Division of Lumber, Inc. Contribution margin $1,211,900 Controllable margin $895,180 Average operating assets $4,069,000 Minimum rate of return 15 % Compute the Annandale Division's residual income. $284,830 895,180 $150,000 $162,760
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![### Annandale Division of Lumber, Inc.
**Presented below is information related to the Annandale Division of Lumber, Inc.**
| Financial Metric | Value |
|-----------------------------|----------------|
| Contribution Margin | $1,211,900 |
| Controllable Margin | $895,180 |
| Average Operating Assets | $4,069,000 |
| Minimum Rate of Return | 15% |
### Problem Statement
**Compute the Annandale Division's residual income.**
### Options:
- $284,830
- $895,180
- $150,000
- $162,760
To calculate the residual income, use the formula:
\[ \text{Residual Income} = \text{Controllable Margin} - (\text{Average Operating Assets} \times \text{Minimum Rate of Return}) \]
This exercise helps in understanding how to measure the performance of a division beyond its basic profit metrics by considering the costs of invested capital.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb927492b-754f-4428-82b7-6a84aa10f11f%2Fa4bf7466-552a-4eae-91fa-fb4fb62ecda6%2Fwikfjp_processed.png&w=3840&q=75)
Transcribed Image Text:### Annandale Division of Lumber, Inc.
**Presented below is information related to the Annandale Division of Lumber, Inc.**
| Financial Metric | Value |
|-----------------------------|----------------|
| Contribution Margin | $1,211,900 |
| Controllable Margin | $895,180 |
| Average Operating Assets | $4,069,000 |
| Minimum Rate of Return | 15% |
### Problem Statement
**Compute the Annandale Division's residual income.**
### Options:
- $284,830
- $895,180
- $150,000
- $162,760
To calculate the residual income, use the formula:
\[ \text{Residual Income} = \text{Controllable Margin} - (\text{Average Operating Assets} \times \text{Minimum Rate of Return}) \]
This exercise helps in understanding how to measure the performance of a division beyond its basic profit metrics by considering the costs of invested capital.
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