Calculating Residual Income

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

	Small Appliances Division	Cleaning Products Division
Sales	$34,660,000	$31,370,000
Operating income	2,765,500	1,253,100
Operating assets, January 1	6,398,000	5,740,000
Operating assets, December 31	7,490,000	6,010,000

Forchen, Inc., requires an 7 percent minimum rate of return.

Required:

1. Calculate residual income for the Small Appliances Division.

$ fill in the blank 1

2. Calculate residual income for the Cleaning Products Division.

$ fill in the blank 2

3. What if the minimum required rate of return was 8 percent? How would that affect the residual income of the two divisions?

Small Appliances Division residual income would be	higher.lower.unaffected.
Cleaning Products Division residual income would be	higher.lower.unaffected.