ACCA MA · Chapter 14 · Question 2 of 11
A division made an operating profit of $180,000 on capital employed of $1,200,000. The company's cost of capital is 12%. What is the division's residual income (RI)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $36,000
Explanation
RI = profit - (capital employed x cost of capital) = 180,000 - (1,200,000 x 12%) = 180,000 - 144,000 = $36,000.
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