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	$	21,750,000
Variable expenses		13,731,600
Contribution margin		8,018,400
Fixed expenses		6,025,000
Net operating income	$	1,993,400
Divisional operating assets	$	4,338,800

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 $2,126,350. The cost and revenue characteristics of the new product line per year would be:

Sales	$ 9,350,000
Variable expenses	65% of sales
Fixed expenses	$ 2,560,500

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
Margin	%	%	%
Turnover
ROI	%	%	%

4.	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
Minimum Required Return	%	%	%
Minimum Net Operating Income
Actual Net Operating Income
Minimum Net Operating Income
Residual Income