CALCULATING RESIDUAL INCOME East Mullett Manufacturing earned operating income last year as shown in the following income statement:

Sales $531,250 Cost of goods sold 280,000 Gross margin $251,250 Selling and administrative expense 187,500 Operating income $ 63,750 At the beginning of the year, the value of operating assets was $390,000. At the end of the year, the value of operating assets was $460,000. East Mullett requires a minimum rate of return of 10 percent.

Required:

For East Mullett, calculate:

. Average operating assets

. Residual income Cornerstone Exercise