The sales, income from operations, and invested assets for each division of Winston Company are as

follows:

Income

from Invested

Sales Operations Assets.

Division C $ 4,000,000 $410,000 $3,500,000

Division D 3,500,000 600,000 4,000,000

Division E 2,250,000 750,000 7,000,000

Management has established a minimum rate of return for invested assets of 10%.

INSTRUCTIONS:

(a) Determine the residual income for each division.

(b) Based on residual income, which of the divisions is the most profitable?