Question

In: Accounting

Calculate the Residual Income (RI) for each of the following segments. Segment 1                           Segment 2&nbs

Calculate the Residual Income (RI) for each of the following segments.

Segment 1                           Segment 2                       Segment 3

    Income                 $ 180,000           $ 1,000,000             $ 500,000

    Investment            2,000,000         5,000,000               2,000,000

Minimum Income (10%) 200,000         500,000                200,000

Solutions

Expert Solution

Residual Income is the income in excess of minimum income.
Calculation of residual income is as follows:
Segment 1 Segment 2 Segment 3
Income a $       1,80,000 $       10,00,000 $       5,00,000
Investment b $     20,00,000 $       50,00,000 $     20,00,000
Minimum Income c=b*10% $       2,00,000 $          5,00,000 $       2,00,000
Residual Income a-c 0 $          5,00,000 $       3,00,000
In the case of Segment 1, income is less than minimum income.So there is no residual income because residual income is in the excess of minimum income.

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