Answer (A) is correct . Residual income is the excess of the amount of the ROI over a targeted amount equal to an imputed interest charge on invested capital. If a manager has $19,000,000 of invested capital ($17,200,000 of plant and equipment + $1,800,000 of working capital), a 15% imputed interest charge equals $2,850,000. Adding $2,000,000 of residual income to the imputed interest results in a target profit of $4,850,000. This profit can be achieved if costs are $25,150,000 ($30,000,000 revenue – $4,850,000 profit).
Answer (B) is incorrect because Scenario 2 requires maximum costs of $26,220,000 to reach the target.
Answer (C) is incorrect because Scenario 3 requires maximum costs of $25,330,000 to reach the target.
Answer (D) is incorrect because Scenario 4 requires maximum costs of $25,600,000 to reach the target.
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To establish a standard of performance for the division’s manager using the residual income approach, four scenarios are being considered. 
Which scenario assumes the lowest maximum cost?