I know headquarters wants us to add that new product line, said Joshua, manager of Numbers 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.

Numbers 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	$	10,000,000
Variable expenses		6,000,000
Contribution margin		4,000,000
Fixed expenses		3,200,000
Net operating income	$	800,000
Divisional operating assets	$	4,000,000

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 Divisions ROI for the most recent year; also compute the ROI as it would appear if the new product line is added. (Round the "Turnover", "ROI" answers to 1 decimal place.)

2.

If you were in Dell Havasis position, would you accept or reject the new product line?

	Accept
	Reject

References