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 Rols Operating results for the company's Office Products Division for the most recent year are given below: Sales S10,000,000 6.000.000 4.000.000 3,200,000 Variable expenses Contribution margin Fixed expenses Net operating income Divisional operating assets S 800.000 $ 4.000.000 The company had an overall return on investment (ROI) of 15% last year (considering all divi. sions), The Office Products Division has an opportunity to add a new product line that would re- quire an additional investment in operating assets of $1,000,000. The cost and revenue charactenstics of the new product line per year would be: Sales Variable expenses Fixed expenses S2.000.000 60% of sales S640,000 Pecured: | Compute the Office Products Division's ROI for the most recent year, also compute the ROI as it would appear if the new product line is added 2. If you were in Dell Havasi's position, would you accept or reject the new product line? Explain. 3. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? * Suppose that the company's minimum required rate of retum on operating assets is 12% and that performance is evaluated using residual income : 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 b. Under these circumstances, if you were in Dell Havasi's position, would you accept or reject the new product line? Explain