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Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the

Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the company's Office Products Division for the most recent year are given below:

Sales $24,000,000
Variable expenses

15,416,000

Contribution margin 8,584,000
Fixed expenses

6,784,000

Net operating income

$1,800,000

Divisional operating assets

$6,000,000

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 $2,650,000. The cost and revenue characteristics of the new product line per year would be:

Sales $7,685,000
Variable expenses 60% of sales
Fixed expenses $2,551,420
Suppose that the company's minimum required rate of return on operating assets is 15% and that performance is evaluated using residual income.
(a)

Compute the Office Products Division's residual income for the most recent year; also compute the residual income as it would appear if the new product line is added. (Omit the "$" sign in your response.)

Residual income
Present $
New Line $
Total for company $

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