Calculate current residual income for diagnostic division

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Problem - University Hospital provided the following income statement for two of its divisions: Diagnostic and Outpatient. Both divisions are structured as investment centers.

Segment Margin Income Statement for University Hospital


Diagnostic

Outpatient

Total

Revenue

$500,000

$400,000

$900,000

Variable expenses




Product

220,000

140,000

360,000

Selling and administrative

150,000

80,000

230,000

Contribution margin

130,000

180,000

310,000

Less traceable fixed costs

82,000

93,000

175,000

Segment margin

$48,000

$87,000

135,000

Common fixed costs



130,000

Net operating income



$5,000

The average assets for Diagnostic and Outpatient divisions total $400,000 and $600,000, respectively. The required minimum rate of return for both divisions is 10%.

Required: Calculate the current residual income for the Diagnostic division.

Reference no: EM131822892

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