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Practice ACCA ACCA MA — Management Accounting Practice Exam 2Question 31

Medium2 marksShort Answer

Performance measurementResidual IncomeSyllabus F

ACCA · Question 31 · Performance measurement

A decentralized retail chain evaluates its division managers using Residual Income (RI).
Division A has an operating profit of $450,000 and net assets of $2,000,000. The company's imputed interest charge (cost of capital) is 12%.

Calculate the Residual Income for Division A. (Enter the number only)

How to approach this question

RI = Operating Profit - (Net Assets * Cost of Capital).

Full Answer

Imputed interest charge = 12% * $2,000,000 = $240,000. Residual Income = $450,000 - $240,000 = $210,000.

Common mistakes

Calculating ROI (22.5%) instead of RI.

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