Answer:
Forchen, Inc.
a. Residual income for the Small Appliances Division:
$2,218,880
b. Residual income for the Cleaning Products Division:
$788,800
Explanation:
a) Data and Calculations:
Small Appliances Cleaning Products
Division Division
Sales $34,670,000 $31,320,000
Operating income 2,773,600 1,252,800
Operating assets, January 1 6,394,000 5,600,000
Operating assets, December 31 7,474,000 6,000,000
Average operating assets 6,934,000 5,800,000
Rate of return (8%) 554,720 464,000
Residual income 2,218,880 788,800
b) The rate of return of 8% is computed on the average operating assets. The residual income is the difference between the operating income and the minimum rate of return.
