ACCA Applied Knowledge · Management Accounting · Performance measurement - application
Division Q has profit of $240,000 and capital employed of $1,500,000. The group cost of capital is 12%. What is the residual income (RI) of Division Q?
Residual income is divisional profit less a capital charge. The charge is 12% of $1,500,000, which is $180,000. Deducting this from $240,000 profit leaves residual income of $60,000. Adding the charge or ignoring it gives incorrect figures.
- A$60,000Correct
- B$180,000
- C$420,000
- D$240,000
Explanation
Capital charge = 12% x 1,500,000 = 180,000. RI = 240,000 - 180,000 = 60,000. The $180,000 option is the capital charge itself, and $420,000 adds it instead of deducting it.
Did you get it right without looking?
One question tells you little. A timed set on Performance measurement - application shows your real accuracy, how long you take and where you lose marks.
More Performance measurement - application questions
- Fitzroy Ltd uses the building block model of Fitzgerald and Moyle. Which of the following is a dimension (result) rather than a standard or …
- Which of the following is a commonly stated limitation of the balanced scorecard?
- A company's gross profit margin has stayed constant, but its operating profit margin has fallen sharply compared with last year. Which is th…
- Drayton Ltd has revenue of $1,200,000, of which 75% is on credit. Year-end trade receivables are $90,000. Using year-end receivables and cre…
- Dalton Co sets a balanced scorecard target of increasing customer satisfaction from 80% to 90% by training staff and improving delivery proc…
- Division R earns ROI of 20% on capital employed of $500,000. The cost of capital is 12%. A new project costing $100,000 would earn annual pr…