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Practice ACCA ACCA MA — Management Accounting Practice Exam 4Question 31

Medium2 marksShort Answer

Performance MeasurementSyllabus FPerformance MeasurementResidual Income

ACCA · Question 31 · Performance Measurement

A division of a multinational corporation has controllable profit of $250,000 and net assets of $1,500,000. The company's cost of capital is 12%.

Calculate the division's Residual Income (RI). (Enter numbers only)

How to approach this question

1. Calculate the imputed interest charge (Net Assets * Cost of Capital). 2. Subtract the imputed interest from the controllable profit.

Full Answer

Imputed interest charge = 12% × $1,500,000 = $180,000. Residual Income = Controllable Profit - Imputed Interest RI = $250,000 - $180,000 = $70,000.

Common mistakes

Calculating Return on Investment (ROI) instead of Residual Income.

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Practice the full ACCA MA — Management Accounting Practice Exam 4

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