Vaughn, inc. reports the following financial information for its sports clothing segment. average operating assets $2,915,000 controllable margin $612,150 minimum rate of return 8 % compute the return on investment and the residual income.
a. return on investment
b. residual income

a. 21

b. $378,950

Explanation:

ROI = (Net operating income / Average operating asset)100

       = ($612,150 / $2,915,000)100

       = 21

Residual income = Net operating income - (average operating asset x               minimum rate of return)

Residual income = $612,150 - ($2,915,000 x 8%)

                            = $612,150-$233,200

                            = $378,950

*we used controllable margin because it is in segmented department wherein fixed cost is more complicated to allocate each department.

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