27. Residual Income (R) Sorrento Company has three divisions ---Northwest, South, and East. (This is the same company as the previous exercises. This exercise can be assigned independently.) Segmented income statement information for the most recent fiscal year ended December 31 is shown as follows. Assume average operating assets totaled $15,000,000 for the Northwest division, $6,500,000 for the South division, and $17,500,000 for the East division. Assume the cost of capital rate is 16 percent. Required a Calculate residual income for each division. b. What does residual income tell us about each division? Sorrento Company Segmented Income Statements for the Current Fiscal Year Ended December 31 (dollar amounts are in thousands) Northwest Division South Division East Division Sales Cost of goods sold Gross margin Allocated overhead Selling and administrative expenses Operating Income Income tax expense (35% rate) Net Income $ 22,000,000 10,000,000 $ 12.000.000 4,125,000 5.000.000 52875,000 1,006250 SB68750 $ 8,000,000 2,000,000 $ 6,000,000 1.500,000 3,200,000 3 1500,000 455,000 S845,000 $ 18,000,000 7,000,000 $ 11,000,000 3,375,000 5,000,000 $ 2,625,000 918,250 $ 1,706,250 Required