Calculating Residual Income

Forchen, Inc., provided the following information for two of its divisions for last year:

	Small Appliances Division	Cleaning Products Division
Sales	$34,700,000	$31,370,000
Operating income	2,559,200	1,254,500
Operating assets, January 1	6,400,000	5,760,000
Operating assets, December 31	7,470,000	6,760,000

Forchen, Inc., requires an 6 percent minimum rate of return.

Required:

1. Calculate residual income for the Small Appliances Division.

$

2. Calculate residual income for the Cleaning Products Division.

$

3. What if the minimum required rate of return was 7 percent? How would that affect the residual income of the two divisions?

Small Appliances Division residual income would be
Cleaning Products Division residual income would be