2.

Calculating Residual Income

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

	Small Appliances Division	Cleaning Products Division
Sales	$34,680,000	$31,330,000
Operating income	2,488,000	1,252,800
Operating assets, January 1	6,397,000	5,690,000
Operating assets, December 31	7,570,000	6,810,000

Forchen, Inc., requires an 7 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 8 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