Answer (A) is correct . Residual income is income of an investment center minus an imputed interest charge for invested capital. Accordingly, Cinder’s residual income is $170,400 [($600,000 sales – $360,000 variable costs – $60,000 traceable fixed costs) net income – ($120,000 average invested capital × 8%) imputed interest].
Answer (B) is incorrect because The imputed interest charge of $9,600 ($120,000 ¡Á 8%) must be deducted.
Answer (C) is incorrect because The imputed interest charge of $9,600 should be subtracted from, not added to, net income.
Answer (D) is incorrect because The traceable fixed costs must be deducted. |
Cinder’s residual income was
