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.