Kraft Foods Group reports the following for two of its divisions for a recent ye

Question

Kraft Foods Group reports the following for two of its divisions for a recent year. All numbers are in millions of dollars (Smillions) Invested assets, beginning Invested assets, endin Sales Operating income Beverage Cheese Division $ 4,780 4,940 4,405 714 Division $ 2,900 2,810 3,401 589 Assume that each of the company's divisions has a required rate of return of 8%. Compute residual income for each division. (Enter your answer in millions. Round "Targeted return" to 2 decimal places. Round your answers to nearest whole dollar.) (S millions) Beverage Cheese Targeted return Target income Residual Income Beverage Cheese Residual income

Explanation / Answer

Solution:

Computation of Residual Income - Kraft Foods Group (In Millions) Particulars Beverage Cheese Invested Assets beginning $2,900.00 $4,780.00 Invested Assets Ending $2,810.00 $4,940.00 Average Assets during period $2,855.00 $4,860.00 Targeted return 8% 8% Target Income $228.40 $388.80 Operating Income $589.00 $714.00 Residual Income (Operating income - Target Income) $360.60 $325.20

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