Carter Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,130,000; sales of $4,555,000; cost of goods sold of $2,580,000; and operating expenses of $1,402,000. Assume a target income of 9% of average invested assets. Compute residual income for the division:

$201,300

Explanation:

Carter Company

Computation of the residual income for the division

First step

Using this formula

Sales -Cost of goods sold- expenses

Operating

Let plug in the formula

$4,555,000 - 2,580,000 - 1,402,000

= $573,000

Second step

Now let find the Residual Income

Residual income =$573,000 - ($4,130,000 * 9%)

Residual income = $573,000-$371,700

Residual income =$201,300

Therefore the residual income for the division will be $201,300

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