Question

Required information (The following information applies to the questions displayed below.) A food manufacturer reports the following for two of its divisions for a recent year. ($ millions) Invested assets, beginning Invested assets, ending Sales Operating income Beverage Division $2,680 2,602 2,690 358 Cheese Division $4,473 4,409 3,934 643

Answer 1

1
Return on Investment
	Choose Numerator:	/	Choose Denominator	=	Return on Investment
Investment Center	Operating income	/	Average invested assets	=	Return on Investment
Beverage	358	/	2641	=	13.56%
Cheese	643	/	4441	=	14.48%
2
Profit Margin
	Choose Numerator:	/	Choose Denominator	=	Profit margin
Investment Center	Operating income	/	Sales	=	Profit margin
Beverage	358	/	2690	=	13.31%
Cheese	643	/	3934	=	16.34%
3
Investment Turnover
	Choose Numerator:	/	Choose Denominator	=	Investment Turnover
Investment Center	Sales	/	Average invested assets	=	Investment Turnover
Beverage	2690	/	2641	=	1.02
Cheese	3934	/	4441	=	0.89
4
($ millions)	Beverage		Cheese
Average Assets	2641		4441
Targeted return	8%		8%
Target income	211		355
Residual Income	Beverage		Cheese
Operating income	358		643
Less: Target income	211		355
Residual Income	147		288
Note: For 4, Target income has been rounded off. The answer will slightly differ if not rounded off