Popular Courses
COMM 305
Concordia University
Managerial Accounting
University Study Guides
Managerial Accounting
University Study Guides
ACCTG 322
University of Alberta
ACCT 2230
University of Guelph
ADM 2341
University of Ottawa
RSM222H1
University of Toronto
COMMERCE 2AB3
McMaster University
ACTG 2020
York University
ACC 312
The University of Texas at Austin
ACC 242
Arizona State University - Tempe
ACC 202
Michigan State University
ACIS 2116
Virginia Tech
ACG 2071
University of Central Florida
BUS1 21
San José State University
BUS-A 306
Indiana University - Bloomington
ACCT 2102
Temple University
ACCTG-202
San Diego State University
MGMT 20100
Purdue University
ACCTMIS 2300
Ohio State University
0:00 / 0:00
Residual Income
Residual income is the amount of earnings a segment has generated in excess of the company's minimum requirement (the required rate of return = ROR). The residual income is a better tool for determining if an investment should be taken because it measures actual cash flow.
Wize Tip
Operating Income is sometimes called just 'Income' or 'Controllable Margin'
0:00 / 0:00
Example: Residual Income
ABC Inc. is a subsidiary of Mega Corporation. ABC Inc has average operating assets of $1,000,000 and Mega Corporation requires a minimum rate of return of 20% on its investment. Sales at ABC Inc. totalled $400,000 in 2021, variable costs totalled $120,000; controllable fixed costs totalled $60,000 and allocated fixed costs totalled $30,000.
What is ABC Inc.'s residual income?
Practice: Residual Income
The following information is available for Maggie's Auto Sales
Average operating assets: $750,000
Operating Income: 90,000
Contribution margin: 175,000
Minimum rate of return: 10%
How much is Maggie's Residual Income?