(Adapted from National Association of Accountants, Research Report No. 35, p. 34) PROBLEM 1 know 11-18 Return on Investment (ROI) and Residual Income [L011-1, LO11 w headquarters wants us to add that new product line," said Dell Havasi, manager -21 of Billings s Office Products Division. "But I want to see the numbers before I make any move s return on investment (ROI) has led the company for three years, and I don't want any letdown. Billings Company is a decentralized wholesaler with five autonomous divisions. The divi- ons are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROls. Operating results for the company's Office Products Division for the most recent year are given below: Sales . Variable expenses $10,000,000 6,000,000 4,000,000 3,200,000 800,000 Net operating income . . The company had an overall return on investment (ROI) of 15% last year (considering all divisions). The Office Products Division has an opportunity to add a new product line that would require an additional investment in operating assets of $1,000,000. The cost and revenue character- istics of the new product line per year would be: Sales Variable expenses $2,000,000 60% of sales 640,000