11.Calculating Residual Income

Forchen, Inc., provided the following information for two of its divisions for last year:

	Small Appliances Division	Cleaning Products Division
Sales	$34,660,000	$31,360,000
Operating income	2,541,400	1,252,800
Operating assets, January 1	6,400,000	5,720,000
Operating assets, December 31	7,580,000	6,930,000

Forchen, Inc., requires an 8 percent minimum rate of return.

Required:

1. Calculate residual income for the Small Appliances Division.

$

2. Calculate residual income for the Cleaning Products Division.

$

3. What if the minimum required rate of return was 9 percent? How would that affect the residual income of the two divisions?

Small Appliances Division residual income would be	(higher, lower, or unaffected?)
Cleaning Products Division residual income would be	(higher, lower, or unaffected?)

Calculating Residual Income Forchen, Inc., provided the following information for two of its divisions for last year: Small Appliances Cleaning Products Division Division Sales $34,660,000 $31,360,000 Operating income 2,541,400 1,252,800 Operating assets, January 1 6,400,000 5,720,000 Operating assets, December 31 7,580,000 6,930,000 Forchen, Inc., requires an 8 percent minimum rate of return. Required: 1. Calculate residual income for the Small Appliances Division. 2. Calculate residual income for the Cleaning Products Division. 3. What if the minimum required rate of return was 9 percent? How would that affect the residual income of the two divisions? Small Appliances Division residual income would be Cleaning Products Division residual income would be