Headquarters wants us to add that new product line, said Brian Larsen, new manager of McCollums Office Products Division. I want to see the numbers before I make a move. Our divisions ROI has led the company for 4 straight years, and I dont want to be the manager that broke that streak.

McCollum is a decentralized wholesaler with 5 autonomous divisions. All divisions are evaluated based on ROI, and year-end bonuses are awarded to divisions with the highest ROIs. Office Product Division operating results for the most recent year are given below, and are based division average operating assets of $4 million:

Sales $10,000,000

Variable expenses 6,000,000

Contribution margin 4,000,000

Fixed expenses 3,200,000

EBIT/NOI $ 800,000

McCollum had an overall company ROI of 15% last year including all 5 divisions. This new product line will require an additional investment of $1 million, and will produce the following results: Sales of $2 million, Variable expenses equal to 60% of sales, and fixed expenses of $640,000.

Required:

1. What is the Office Products Division ROI for the most recent year broken out by Margin, Asset Turnover, and Total ROI?
2. What is the forecasted ROI for the new product broken out by Margin, Asset Turnover, and Total ROI?
3. What is the combined Office Products Division ROI for the most recent year plus the new product broken out by Margin, Asset Turnover, and Total ROI?
4. If you are manager Larsen, will you want to accept the new product? Why or why not?
5. If you are at McCollum parent company, will you want to accept the product? Why or why not?