The Casket Division of Landazuri Corporation Had Average Operating Assets

question 84

Essay

The Casket Division of Landazuri Corporation had average operating assets of $620,000 and net operating income of $86,000 in February. The company uses residual income to evaluate the performance of its divisions, with a minimum required rate of return of 14%.
Required:
What was the Casket Division's residual income in February?

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Definitions:

Flexible Manufacturing Overhead Budget

A plan that estimates the variable and fixed overhead costs for each level of production activity.

Direct Labor Hour

A measure of the labor directly involved in producing goods or services, expressed in hours.

Volume Overhead Variances

The difference between the budgeted overhead costs based on expected volume and the actual overhead costs incurred.

Controllable Variance

The difference between actual and budgeted performance that can be directly managed or controlled by responsible managers.