Required informatio [The following information applies to the questions displaye

Question

Required informatio [The following information applies to the questions displayed below.] A food manufacturer reports the following for two of its divisions for a recent year. Beverage Division $2,680 2,602 2,690 Cheese Division $4,473 4,409 3,934 (Smillions) Invested assets, beginning Invested assets, ending Sales Operating income 358 643 Assume that each of the company's divisions has a required rate of return of 8%. Compute residual income for each division. (Enter your answers in millions.) ($ millions) Beverage Cheese Targeted return Target income Residual Income Beverage Cheese Residual income

Explanation / Answer

Target income = Required rate of return * Average assets

Residual income = Operating income - Target income

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Profit margin = Operating income / Sales

Beverage Division Cheese Division Average asset 2,641 [(2,680+2,602)/2] 4,441 [(4,473+4,409)/2]

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