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: Selling and administrative expense 1,200.000 Operating income 5 300,000 Less. Income taxes (@ 40%) 120.000 et come 180.000 At the beginning of the year, the value of operating assets was $1,600,000. At the end of the year, the alue of operating assets was $1,400,000 East Mutett requires a minimum rate of return of 5% Required: For East Mullett, calculate: 1. Average operating assets 2. Residual income