I know headquarters wants us to add that new product line, said Dell Havasi, manager of Billings Companys Office Products Division. But I want to see the numbers before I make any move. Our divisions return on investment (ROI) has led the company for three years, and I dont 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 companys Office Products Division for the most recent year are given below:

Sales	$	21,902,000
Variable expenses		13,788,600
Contribution margin		8,113,400
Fixed expenses		6,055,000
Net operating income	$	2,058,400
Divisional operating assets	$	4,562,500

The company had an overall return on investment (ROI) 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 $2,250,500. The cost and revenue characteristics of the new product line per year would be:

Sales	$ 9,450,000
Variable expenses	65% of sales
Fixed expenses	$ 2,570,200

Required:
1.	Compute the Office Products Divisions ROI for the most recent year; also compute the ROI as it would appear if the new product line is added. (Round the "Margin", "Turnover" and "ROI" answers to 2 decimal places.)

Present New Line total

Sales

Net operating income

operating assets

margin % % %

turnover

roi % % %

2.

Suppose that the companys minimum required rate of return on operating assets is 14.00% and that performance is evaluated using residual income.

a.	Compute the Office Products Divisions residual income for the most recent year; also compute the residual income as it would appear if the new product line is added. Present New line Total operating assets minimium required return % % % minimium net operating income actual net operating income minimium net operaing income residual income $ $ $