A food manufacturer reports the following for two of its divisions for a recent

Question

A food manufacturer reports the following for two of its divisions for a recent year. Beverage Division $2,700 2,612 2,700 Cheese Division $4,493 4,419 3,944 (smillions) Invested assets, beginning Invested assets, ending Sales Operating income 368 653 Assume that each of the company's divisions has a required rate of return of 7%. Compute residual income for each division. (Enter your answers in millions.) (S millions) Beverage Cheese Targeted return Target income Residual Income Beverage Cheese Residual income

Explanation / Answer

Targeted return for both beverage and cheese is 7%, and targeted income for beverage is $189 and for cheese is $314.51. Residual income of beverages is $368-189=$179 and that of cheese is $653-314.51=$338.49

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