Calculating Residual Income

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

Sales	$3,750,000
Cost of goods sold	2,250,000
Gross margin	$1,500,000
Selling and administrative expense	1,200,000
Operating income	$ 300,000
Less: Income taxes (@ 40%)	120,000
Net income	$ 180,000

At the beginning of the year, the value of operating assets was $1,600,000. At the end of the year, the value of operating assets was $1,400,000.

East Mullett requires a minimum rate of return of 5%.

Required:

For East Mullett, calculate:

1. Average operating assets	$
2. Residual income	$