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James Webb is the general manager of the Industrial Product Division, and his performance is measured using the residual income method.

Webb is reviewing the following forecasted information for his division for  next year:                                                                                      Amount

(Category                           (thousands

Working capital                           $1,800

Revenue                                      30,000

Plant and equipment                  17,200

If the imputed interest charge is15% and Webb wants to achieve a residual income target of $2,000,000, what will costs have to be in order to achieve the target?

A. $9,000,000

B. $10,800,000

C. $25,150,000

D. $25,690,000

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Question added by Deleted user
Date Posted: 2015/02/24
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CA SHAHAD AC
by CA SHAHAD AC , Accounts Associates , UCWF Facilities Management LLC

Answer - C.25,150,000

Divisions Residual Income = (Net Operating Income) - (ROR* Net Operating Asset) 2000 = Net Operating Income - (1800+17200)*15%       Net Operating Income =4850           Cost to be achieved = =25150        

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