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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

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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: $50,000,000 30,000,000 Sales Less: Variable expenses Contribution margin Less: Fixed expenses 20,000,000 16,000,000 Net operating income $4,000,000 Divisional operating assets $10,000,000 The company had an overall ROI of 15.5% last year (considering all divisions). The office products division has an operating assets of $5,000,000. The cost and revenue characteristics of the new product line per year would be as follows: new product line that would require an additional investment in opportunity to add a Sales Variable expenses Fixed expenses $10,000,000 60% of sales $3.200,000 Required: 1. Compute the office products division s ROI for the most recent year also compute the ROI if the new product line were added. (Do not round intermediate calculations. Round "Percentage" answers to 2 decimal places, (i.e., 0.1234 should be considered as 12.34% ). ) 2 decimal places, (i.e., 0.1234 should be considered as 12.34%).) 40.00 % ROI 1.45 % 2. If you were in Dell Havasi's position, would you be inclined to accept or reject the new product line? Accept Reject 3. Not available in Connect. 4. Suppose that the company views a return of 15.0% on invested assets as being the minimum that any division should earn and that performance is evaluated by the RI approach. Compute the office products division's RI for the most recent year, also compute the RI as it would appear if the new product line were added. a. Present New Line Total RI b. Under these circumstances, if you were in Dell Havasi's position, would you accept or reject the new product line? Accept Reject

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