Lauderdale Corporation is organized in three geographical divisions $($regions$)$ with managers responsible for revenues, costs, and

assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance.

Corporate overhead $($all fixed$)$ is allocated to the regions based on regional gross margin $($regional revenue minus regional cost of

sales$).$

The following information is from Lauderdale's first year of operations:

Information on the division assets in the three regions of Lauderdale Corporation follows:

Lauderdale Corporation has a cost of capital of $8\mathrm{.}6$ percent.

Required:

a$.$ Compute residual income for the three regions. Ignore taxes.

b$.$ How have these regions performed?

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