Refer to the information for East Mullett Manufacturing on the previous page. East Mullett requires a minimum rate of return of 10 percent.
East Mullett Manufacturing earned operating income last year as shown in the following income statement:
Sales ..................... $ 630,000
Cost of goods sold .............. 380,000
Gross margin ................ $ 250,000
Selling and administrative expense ......... 174,400
Operating income ............... $ 75,600
Less: Income taxes (@ 40%) .......... 30,240
Net income .................. $ 45,360
At the beginning of the year, the value of operating assets was $ 345,000. At the end of the year, the value of operating assets was $ 405,000.
Required:
Calculate
(1) Average operating assets
(2) Residual income.