Results from First Corporation’s most recent year of operations is presented in the following table.
| Operating income. . . . . . . . . . . . . . . . | $7,560 | |
| Total assets. . . . . . . . . . . . . . . . . . . . . | $12,000 | |
| Current liabilities. . . . . . . . . . . . . . . . . | $4,500 | |
| Sales. . . . . . . . . . . . . . . . . . . . . . . . . . | $27,000 | |
| Target rate of return. . . . . . . . . . . . . . . | 16 | % |
1 Calculate the sales margin, capital turnover, and return on investment (ROI).First enter the formula, then calculate the sales margin.
2 Calculate the residual income (RI).
Darshita Changed status to publish August 30, 2020
Answer:
1
| Operating income | / | Sales | = | Sales margin | ||||||
| $7,560 | / | $27,000 | = | 28 | % | |||||
| Sales | / | Total assets | = | Capital turnover | ||||
| $27,000 | / | $12,000 | = | 2.25 | times | |||
| Operating income | / | Total assets | = | ROI | ||||
| $7,560 | / | $12,000 | = | 63 | % | |||
2. Calculate the residual income (RI).
| Operating income | – | ( | Total assets | x | Target rate of return | ) = | RI | ||||||||||||
| $7,560 | – | ( | $12,000 | x | 16 | % | ) | = | $5,640 | ||||||||||
Darshita Changed status to publish August 30, 2020
