Calculating Residual Income

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

Sales$3,650,000

Cost of goods sold 2,150,000

Gross margin$1,500,000

Selling and administrative expense1,000,000

Operating income$500,000

Less: Income taxes (@ 40%) $200,000

Net income$300,000

At the beginning of the year, the value of operating assets was $2,100,000. At the end of the year, the value of operating assets was $1,600,000. East Mullett requires a minimum rate of return of 9%.

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

Required:

For East Mullett Manufacturing, calculate the following:

1. Average Operating Assets

2. Residual Income