Ewan Logistics provides the following information
Operating income $1,500,000
Net sales $14,500,000
Average total assets $1,950,000
Management's target rate of return 20%
What is the company's residual income?
A) $(450,000 )
B) $390,000
C) $1,650,000
D) $1,110,000
D .D) RI = Operating income - Minimum acceptable operating income
Operating Income $1,500,000
Less: Minimum acceptable operating income* 390,000
Residual Income $1,110,000
* Minimum acceptable operating income = Target rate of return x Average total assets
Minimum acceptable operating income = 20% x $1,950,000 = $390,000
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