The Victorian Division of WDY Reported Net Profit of $2,500

question 36

Multiple Choice

The Victorian Division of WDY reported net profit of $2,500, operating profit of $4,000, average equity of $24,000, and average operating assets of $30,000 in a recent accounting period. If Victoria's required rate of return is 12%, its residual income was

• A) $380
• B) $(380)
• C) $400
• D) $1,100

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Definitions:

Avoidable Fixed Costs

Costs that can be eliminated if a particular decision is made, such as discontinuing a product or service that is not contributing to profits.

Unavoidable Allocated Fixed Corporate Costs

Fixed expenses that are distributed across different departments or products within a company, and cannot be avoided or eliminated.

Contribution Margin

Contribution margin represents the portion of sales revenue that remains after variable costs are deducted, indicating how much contributes to covering fixed costs and generating profit.

Variable Manufacturing Overhead

Costs in the production process that vary with the level of production output, such as utilities for machinery.