1. Compute the residual income for each of the opportunities. (Round to the nearest dollar.)Juice Box residual incomeFruit Pouch residual income2. Compute the divisional residual income for each of the following four alternatives: (Round to the nearest dollar.)a. The juice box is added.b. The fruit pouch is added.$c. Both investments are added.$(A$XXd. Neither investment is made; the status quo is maintained.$Was the correct decision made?Assuming that divisional managers are evaluated and rewarded on the basis of residual income, which alternative do you think the divisional manager will choose?3. Assuming that management acts as you recommend in requirement 2, compute the change in profit (loss) from the divisional manager's investment decision. Frozen Foods Division:SalesOperating incomeAverage operating assetsCanned Foods Division:SalesOperating incomeAverage operating assetsYear 1$6,000,000Year 2$6,200,000420,000 434,0004,000,000 4,000,000Operating incomeOutlayYear 1$2,400,000120,0001,000,000At the end of Year 2, the manager of the Canned Foods Division is concerned about the division's performance. As a result, he is considering the opportunity to invest intwo independent projects. The first is juice boxes for elementary school children. The second is fruit and veggie pouches for kids on the go. Without the investments, thedivision expects that Year 2 data will remain unchanged. The expected operating incomes and the outlay required for each investment are as follows:Juice BoxYear 2$2,600,000117,0001,000,000$ 6,25050,000Fruit Pouch$ 3,80040,000Allard's corporate headquarters has made available up to $100,000 of capital for this division. Any funds not invested by the division will be retained by headquarters andinvested to earn the company's minimum required rate of return, 9 percent.

Residual income: The remaining income from operations after deducting the desired acceptable income…

Frozen Foods Division: Sales Operating income Average operating assets Canned Foods Division: Sales Operating income Average operating assets Year 1 Year 2 $6,000,000 $6,200,000 420,000 434,000 4,000,000 4,000,000 Operating income Outlay Year 1 $2,400,000 120,000 1,000,000 Year 2 $2,600,000 117,000 1,000,000 At the end of Year 2, the manager of the Canned Foods Division is concerned about the division's performance. As a result, he is considering the opportunity to invest in two independent projects. The first is juice boxes for elementary school children. The second is fruit and veggie pouches for kids on the go. Without the investments, the division expects that Year 2 data will remain unchanged. The expected operating incomes and the outlay required for each investment are as follows: Juice Box Fruit Pouch $ 6,250 50,000 $ 3,800 40,000 Allard's corporate headquarters has made available up to $100,000 of capital for this division. Any funds not invested by the division will be retained by headquarters and invested to earn the company's minimum required rate of return, 9 percent.

Frozen Foods Division: Sales Operating income Average operating assets Canned Foods Division: Sales Operating income Average operating assets Year 1 Year 2 $6,000,000 $6,200,000 420,000 434,000 4,000,000 4,000,000 Operating income Outlay Year 1 $2,400,000 120,000 1,000,000 Year 2 $2,600,000 117,000 1,000,000 At the end of Year 2, the manager of the Canned Foods Division is concerned about the division's performance. As a result, he is considering the opportunity to invest in two independent projects. The first is juice boxes for elementary school children. The second is fruit and veggie pouches for kids on the go. Without the investments, the division expects that Year 2 data will remain unchanged. The expected operating incomes and the outlay required for each investment are as follows: Juice Box Fruit Pouch $ 6,250 50,000 $ 3,800 40,000 Allard's corporate headquarters has made available up to $100,000 of capital for this division. Any funds not invested by the division will be retained by headquarters and invested to earn the company's minimum required rate of return, 9 percent.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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