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2 October, 09:42

Oriole Company had sales of $392000, variable costs of $192000, and direct fixed costs totaling $97000. The company's operating assets total $809000, and its required return is 10%. How much is the residual income?

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  1. 2 October, 10:10
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    Residual Income = $ 22,100

    Explanation:

    Residual income is the excess of the controllable profit over the opportunity cost of capital invested.

    It is computed as follows:

    Residual income = Controllable profit - (cost of capital * operating assets)

    Controllable profit = 392,000 - 192,000 - 97,000 = $103,000

    Residual income = 103,000 - (10% * 809,000) = 22,100

    Residual Income = $ 22,100
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