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I know headquarters wants us to add that new product line, said De 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 De Havasi, manager of Billings Company's Office Products Division. "But I want to see the numbers before I 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 Rols. Operating results for the company's Office Products Division for the most recent year are given below. 10,000,000 Sales Variable expenses 6.000.000 Contribution margin 4,000,000 Fixed expenses 3,200,000 Net operating income 800.000 4,000,000 Divisional operating assets The company had an overall return on investment (ROI) of 15% 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 $1,000,000. The cost and revenue characteristics of the new product line per year would be Sales $2,000,000 Variable expenses 60% of sales Fixed expenses $640,000 Required: 1. Compute the Office Products Division's ROI for the most recent year, also compute the ROI as it would appear ifthe new product line is added. (Round your Turnover answers to 1 decimal place. Round your Margin and ROI percentage answers to 1 decimal place (i.e., 0.123 should be entered as 12.3).) Total Present New Line Sales Net operating Operating assets Margin Turnover ROI
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