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Warwick, Inc. has two divisions as shown in the segmented income statement below. Segmented Income Statements For the Current Fiscal Year Ended December 31 Division

Warwick, Inc. has two divisions as shown in the segmented income statement below.

Segmented Income Statements For the Current Fiscal Year Ended December 31

Division A

Division B

Sales

$8,000,000

$2,000,000

Cost of goods sold

3,400,000

1,200,000

Gross margin

4,600,000

800,000

Allocated overhead (from corporate)

1,000,000

100,000

Selling and administrative expenses

600,000

300,000

Operating income

3,000,000

400,000

Income tax expense

2,000,000

300,000

Net income

$1,000,000

$ 100,000

Assume Division B has average operating assets totaling $4,800,000 for the year and the company's cost of capital rate is five percent.

The residual income for Division B is

a) ($160,000)

b) ($240,000)

c) $240,000

d) $160,000

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