Calculating Residual Income East Mullett Manufacturing earned operating income last year as shown in the following income statement: Sales Cost of goods sold $531,250 280,000 Gross margin $251,250 Selling and administrative expense 196,700 Operating income $54,550 Less: Income taxes ( 40% ) 21,820 Net income $32,730 At the beginning of the year, the value of operating assets was $390,000. At the end of the year, the value of operating assets was $460,000. East Mullett requires a minimum rate of return of 10%. Required: For East Mullett, calculate: 1. Average operating assets 2. Residual income 425,000