Craylon Corp has three divisions, which operate autonomously. Their results for 2015 were as follows:

East West International
Sales $30,000,000 $40,000,000 $50,000,000
Cost of goods sold 15,000,000 25,000,000 37,000,000
Operating income 4,500,000 5,000,000 5,500,000
Investment base 30,000,000 32,000,000 34,000,000

The company's desired rate of return is 15%.

Required:
a. Compute each division's ROI. Round to three decimal places.
b. Compute each division's residual income.

Answer:
a. East ROI = $4,500,000 / $30,000,000 = 15.000%
West ROI = $5,000,000 / $32,000,000 = 15.625%
International = $5,500,000 / $34,000,000 = 16.176%

b.
East West International
Investment base $30,000,000 $32,000,000 $34,000,000
Minimum rate × 0.15 × 0.15 × 0.15
Minimum return $ 4,500,000 $ 4,800,000 $ 5,100,000

Operating Income $4,500,000 $5,000,000 $5,500,000
Minimum return 4,500,000 4,800,000 5,100,000
Residual income $ 0 $ 200,000 $ 400,000