Carter Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,240,000; sales of $4,665,000; cost of goods sold of $2,690,000; and operating expenses of $1,512,000. Assume a target income of 8% of average invested assets. Compute residual income for the division:

Residual income is $ 123,800.00  

Explanation:

The formula for residual income is given below:

Residual Income = operating income - (Required Return × Average Operating Assets)

The operating income=Sales-costs of goods sold-operating expenses

sales is $4,665,000

costs of good sold is $2,690,000

operating expenses of $1,512,000

operating income=$4,665,000-$2,690,000-$1,512,000

operating income=$463,000

residual income:

required return is 8%

average operating assets is $4,240,000

residual income=$463,000-($4,240,000*8%)

                           =$463,000-$339,200

                           =$123,800.00  

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation:

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