[The following information applies to the questions displayed below.] A food man

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[The following information applies to the questions displayed below.]

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

Exercise 22-13 Residual income LO A1

Assume that each of the company’s divisions has a required rate of return of 8%. Compute residual income for each division. (Enter your answers in millions.)

($millions) Beverage Division Cheese Division Invested assets, beginning $ 2,695 $ 4,488 Invested assets, ending 2,609 4,416 Sales 2,697 3,941 Operating income 365 650

Exercise 22-13 Residual income LO A1

Assume that each of the company’s divisions has a required rate of return of 8%. Compute residual income for each division. (Enter your answers in millions.)

Explanation / Answer

Particular ( in Million) Beverage Division Cheese Division Operating Asset-Beginning (a) $2,695.00 $4,488.00 Operating Asset-Ending (b) $2,609.00 $4,416.00 Average of Operating Asset (a+b)/2 $2,652.00 $4,452.00 Target Return ( as of % on Average Operating Assets) $0.08 $0.08 Operating Income $365.00 $650.00 Target income $212.16 $356.16 Residual Income $152.84 $293.84

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