Part b

Residual Income and Investment Decisions Allard, Inc., presented two years of data for its Frozen Foods Division and its Canned Foods Division. Frozen Foods Division: Year 1 Year 2 Sales Operating income Average operating assets $35,300,000 $37,700,000 1,440,000 1,580,000 5,690,000 5,690,000 Canned Division: Year 1 Year 2 Sales $11,700,000 $12,900,000 Operating income 630,000 570,000 Average operating assets 5,950,000 5,950,000 At the end of Year 2, the manager of the Canned 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 Operating income Outlay $28,000 160,000 $15,000 110,000 Allard's corporate headquarters has made available up to $520,000 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, 7 percent. Required: 1. Compute the residual income for each of the opportunities. (Round to the nearest dollar.) Juice Box residual income $ 16,800 Fruit Pouch residual income 7,700 x 2. Compute the divisional residual income for each of the following four alternatives: (Round to the nearest dollar.) a. The juice box is added. $ 140,300 X b. The fruit pouch is added. $ 131,200 X c. Both investments are added. $ 148,000 X d. Neither investment is made; the status quo is maintained. $ Assuming that divisional managers are evaluated and rewarded on the basis of residual income, which alternative do you think the divisional manager will choose? Both projects 3. Assuming that management acts as you recommend in requirement 2, compute the change in profit (loss) from the divisional manager's investment decision. Profit $ Was the correct decision made? Yes CVP Analysis of Multiple Products Alo Company produces commercial printers. One is the regular model, a basic model that is designed to copy and print in black and white. Another model, the deluxe model, is a color printer-scanner-copier. For the coming year, Alo expects to sell 90,000 regular models and 18,000 deluxe models. A segmented income statement for the two products is as follows: Regular Model Deluxe Model Total Sales $13,500,000 $12,060,000 $25,560,000 Less: Variable costs 8,100,000 7,236,000 15,336,000 Contribution margin $5,400,000 $4,824,000 $10,224,000 Less: Direct fixed costs 1,200,000 960,000 2,160,000 Segment margin $4,200,000 $3,864,000 $8,064,000 Less: Common fixed costs 1,588,800 Operating income $6,475,200 Required: 1. Compute the number of regular models and deluxe models that must be sold to break even. Round your answers to the nearest whole unit. Regular models units Deluxe models units 2. Using information only from the total column of the income statement, compute the sales revenue that must be generated for the company to break even. Round the contribution margin ratio to four decimal places. Use the rounded value in the subsequent computation. (Express as a decimal- based amount rather than a whole percentage.) Round the amount of revenue to the nearest dollar. Contribution margin ratio Revenue