Question - University Hospital provided the following income statement for two of its divisions: Diagnostic and Outpatient. Both divisions are structured as investment centers.
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Segment Margin Income Statement for University Hospital
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Diagnostic
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Outpatient
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Total
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Revenue
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$500,000
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$400,000
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$900,000
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Variable expenses
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Product
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220,000
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140,000
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360,000
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Selling and administrative
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150,000
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80,000
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230,000
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Contribution margin
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130,000
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180,000
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310,000
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Less traceable fixed costs
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82,000
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93,000
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175,000
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Segment margin
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$48,000
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$87,000
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135,000
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Common fixed costs
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130,000
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Net operating income
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$5,000
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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.
Calculate the current residual income for the Outpatient division.