Adams Corporation evaluates divisional managers based on Return on Investment (ROI) and has provided the operating results of the Northern Division from last year. The Controller has asked you to compute the ROI and Residual Income based on data from last year and if the division adds a new product line.

Sales	$ 27,000,000
Variable expenses	16,200,000
Contribution margin	10,800,000
Fixed expenses	8,805,000
Net operating income	$ 1,995,000
Divisional operating assets	$ 9,500,000

The Northern Division has an opportunity to add a new product line as follows:

Required investment	$ 2,500,000
Net operating income	$ 400,000

Adams Corporation's minimum acceptable rate of return 15%

Required:

Compute the following:

Northern Division ROI for last year

Northern Division ROI if new product line is added

Determine whether the Northern Division manager will ACCEPT or REJECT the new product line based on ROI.

Northern Division residual income for last year

Northern Division residual income if the new product line is added

Determine whether the Northern Division manager will ACCEPT or REJECT the new product line based on residual income.

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