Billings Company is a decentralized wholesaler withivutonomous divisions. The divisions are evaluated on the basis of ROI, with the year-end bonuses given to the divisional managers who have the highest ROls. Operating results for the company's Office Produets Division for the most recent year are given below: Sales Variable expenses Contribution margin. Fixed expenses. Net operating income... $10,000,000 6,000,000 4,000,000 3,200,000 S 800,000 Divisional operating assets $ 4,000,000 The company had an overall return on investment (RON)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 characteristics of the new product line per year would be: Sales Variable expenses Fixed expenses $2,000,000 60% of sales $640,000 Required Compute the Office Product Division's ROI for the most recent year; also compute the ROI as it would appear if the new product line is added. 16 Marks CO3, PO5, C51 (b) If you were Dell Havasi's position, would you accept or reject the new product line? Explain. 12 Marks CONFIDENTIAL 19201/KPA1133/KPC1143 Why do you suppose headquarters is anxious for the Office Product Division to add the new product line? 12 Marks CO3, PO5, C51 Suppose the company's minimum required rate of return on operating assets is 12% and that performance is evaluated using residual income (1) Compute the Office Product 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. 16 Marks CO3, PO5, C5 Under these circumstances, if you were in Dell Havasi's position, would you accept or reject the new product line? Explain. 14 Marks (CO3, PO5, C51 (ii)