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I know headquarters wants us to add that new product line said Dell Havasi, manager of Billings Company's Office Products Division. But I want to
"I know headquarters wants us to add that new product line said Dell Havasi, manager of Billings Company's Office Products Division. "But I want to see the numbers before l make any move. Our division's return on investment (ROI) has led the company for three years, and l don't want any letdown 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 Rois. Operating results for the company's Office Products Division for the most recent year are given below: Sales 21,810,000 Variable expenses 13,741,200 8,068,800 Contribution margin Fixed expenses 6,040,000 2,028,800 Net operating income 4,363,000 Divisional operating assets The company had an overall return on investment (RO) of 18.00% 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 $2,350,000. The cost and revenue characteristics of the new product line per year would be: Sales 9,396,500 Variable expenses 65% of sales Fixed expenses 2,564,875 Required 1. 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. (Do not round intermediate calculations. Round your Turnover answers to 2 decimal places. Round your Margin and Roi percentage answers to 2 decimal places e., 0.1234 should be entered as 12.34).) Total Present New Line. Sales Net operating income Operating assets Margin Turnover ERO
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