ACCA Applied Knowledge · Management Accounting · Performance measurement - overview
Division P has operating profit of $240,000 and capital employed of $1,200,000. Its cost of capital is 15%. What is its residual income (RI)?
Residual income is $60,000. Operating profit of $240,000 less the capital charge of 15% on $1,200,000 capital employed, which is $180,000, leaves $60,000 of profit above the required return.
- A$60,000Correct
- B$180,000
- C$20,000
- D$225,000
Explanation
Imputed interest = 15% x $1,200,000 = $180,000. RI = $240,000 - $180,000 = $60,000. The $180,000 option is the interest charge itself, not the RI.
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