Question: A divisional manager receives a bonus based on 8.0% of residual income from the division. During the current year, the division reported revenues of $2,000,000.

A divisional manager receives a bonus based on 8.0% of residual income from the division. During the current year, the division reported revenues of $2,000,000. The division has a variable cost ratio of 40%, operating leverage of 3.0 and asset turnover of 1.0. The required rate of return for the division is 15%.

Required :

Compute the amount of the bonus for the manager.

If the manager wanted to double the amount of bonus earned how much must sales be increased assuming average operating assets remains the same and the cost structure of division remains the same.

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Lets tackle this problem step by step Step 1 Understanding the Elements 1 Residual Income RI It is calculated as the Divisions Operating Profit minus ... View full answer

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