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Author Question: University Hospital provided the following segment margin income statements for two of its ... (Read 42 times)

gboileau

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on: Feb 5, 2023
University Hospital provided the following segment margin income statements for two of its divisions: Diagnostic and Outpatient. Both divisions are structured as investment centers.


​​DiagnosticOutpatientTotal
Revenue$500,000$400,000$900,000
Variable expenses​​​
  Product220,000 140,000360,000
  Selling and administrative  150,000   80,000 230,000
Contribution margin130,000 180,000310,000
Less traceable fixed costs   82,000   93,000  175,000
Segment margin$  48,000$  87,000135,000
Common fixed costs​​  130,000
Net operating income​​$    5,000

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

Required:

a.Calculate the current residual income for each division.
b.Why is residual income a better measure of performance for managers of investment
centers than the overall profit compared to the flexible budget?
Managerial Accounting ¦ Davis ¦ 4th Edition
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Marked as best answer by gboileau on Feb 5, 2023

jbsuccess1

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Reply #1 on: Feb 5, 2023
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gboileau

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Reply 2 on: Feb 5, 2023
Excellent

rleezy04

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Reply 3 on: Yesterday
Thanks for the timely response, appreciate it

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