Company Ltd. has two different product lines, cupcakes and cookies. The most recent financial information indicated total cupcake sales of $1,000,000 and profit of $90,000. This division had $500,000 of average operating assets throughout the year. Total cookie sales were $600,000 with profit of $45,000. The cookie product line had average operating assets of $300,000. The company has indicated that the minimum required return for any product line it offers is 17%.

Required

a) Compute the residual income of each division.

b) Which division is doing better and why?