CHECK FIGURE (16) Total ROI: 19.2% PROBLEM 12-6 Calculating ROI and RI [LO2- CC4,5,6] "I know headquarters wants us to add on that new product line," said Dell Havasi, manager of Billings Company's office products division. "But I want to see the numbers before I make any move. Our division has led the company for three years, and I don't want any letdown." Billings Company is a decentralized organization with five autonomous divisions. The divisions are evaluated on the basis of the return that they are able to generate on invested assets, with year-end bonuses given to the divisional managers who have the highest ROI figures. Operating results for the company's office products division for the most recent year are as follows: Sales $10,000,000 Less: Variable expenses 6,000.00 Contribution margin 4,000,000 Less: Fixed expenses 3.200,000 Net operating income $ 800,00 Divisional operating assets $ 4,000,000 The company had an overall 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 S1,000,000. The cost and revenue characteristics of the new product line per year would be as follows: Sales $2,000,000 Variable expenses 60% of sales Fixed expenses $ 640.000 Required: 1. Compute the office products division's ROI for the most recent year, also compute the rol if the new product line were added. 2. if you were in Dell Havasi's position, would you be inclined to accept or reject the new product line? Explain 3. Why do you suppose headquarters is anxious for the office products division to acel the new product line? 4. Suppose that the company views a return of 12% on invested assets as being the minimum that any division should earn and that performance is evaluated by the Rl approach # Compute the office products division's RI for the most recent year, also compute the Ras it would appear if the new product line were added. b. Under these circumstances, if you were in Dell Havasi's position, would you accept or reject the new product line? Explain