East Mullett Manufacturing earned operating income last year as shown in the following income statement:

Sales ..............$531,250

Cost of goods sold ........... 280,000

Gross margin ........$251,250

Selling and administrative expense ... 187,500

Operating income ......... $ 63,750

At the beginning of the year, the value of operating assets was $390,000. At the end of the year, the value of operating assets was $460,000. East Mullett requires a minimum rate of return of 10 percent.

Required:

For East Mullett, calculate:

1. Average operating assets

2. Residual income