Colonial Pharmaceuticals is a small firm specializing in new products. It is organized into two divisions, which are based on the products they produce. AC Division is smaller and the life of the products it produces tend to be shorter than those produced by the larger SO Division. Selected financial data for the past year is shown as follows. Divisional investment is as of the beginning of the year. Colonial Pharmaceuticals uses a 9 percent cost of capital and uses beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes.

	AC Division			SO Division
Allocated corp. overhead	$	645		$	1,350
Cost of goods sold		3,290			6,100
Divisional investment		9,900			75,500
R&D		2,450			3,150
Sales		9,800			15,500
SG&A		835			1,080

Required:

a. Compute divisional income for the two divisions.

	AC Division	SO Division
Divisional income

b. Calculate the operating margin, which is equivalent to the return on sales, for the two divisions.

	AC Division		SO Division
Operating margin		%		%

c. Calculate ROI for the two divisions.

	AC Division		SO Division
ROI		%		%

d. Compute residual income for the two divisions.

	AC Division	SO Division
Residual income