The Following Is Divisional Information for Falcon EnterprisesThe Target Rate of Return Is 12% for the East

Question

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The Answer is Average assets: (Beginning assets + Ending assets)/ 2

\begin{aligned} ext { East Division } & = ( \$ 1,500,000 + \$ 1,200,000 ) / 2 \& = \$ 2,700,000 / 2 \& = \$ 1,350,000\end{aligned}

\begin{aligned} ext { West Division } & = ( \$ 840,000 + \$ 1,000,000 ) / 2 \& = \$ 1,840,000 / 2 \& = \$ 920,000\end{aligned}

Minimum acceptable operating income = Average assets × Target rate of return

\begin{array} { ll } ext {East Division}&= \$ 1,350,000 imes 0.12 \&= \$ 162,000\end{array}

\begin{aligned} ext { West Division } & = \$ 920,000 imes 0.10 \& = \$ 92,000\end{aligned}

ext { Residual income = Operating income - Minimum acceptable operating income }

ext { East Division } \quad = \$ 250,000 - \$ 162,000 = \$88, 000

ext { West Division } = \$ 200,000 - \$ 92,000 = \$ 108 , 000

The Following Is Divisional Information for Falcon Enterprises The Target Rate of Return Is 12% for the East