Question
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
|
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