Residual income
Claire’s Cough Drops operates two divisions. The following information pertains to each division for 2012.
| Division A | Division B |
Sales | $200,000 | $72,000 |
Operating i ncome | $ 15,040 | $ 8,100 |
Average operating assets | $ 63,000 | $45,000 |
Company’s desired rate of return | 18% | 18% |
Required
a. Compute each division’s residual income.
b. Which division increased the company’s profitability more?
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