"I know headquarters wants us to add that new product line sald Dell 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 I don't want any letdown." Bilings 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 this year are given below. bales Variable expenses Contribution targin Fixed expenses at operating Income Divisional werade operating sets $ 21,100.00 13,350.400 7.749,600 1935. 51,814.be 54.220.000 The company had an overall return on investment (ROI) of 18.00% this year considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional Investment that would increase average operating assets by $2.262.500 The cost and revenue characteristics of the new product line per year would be Variable de $9,500 of slet $2,514 Required: Compute the Omot Products Division's morgna turnover and RO for this year 2. Complete the Office Products Division's magi turnover and ro Yor the new product line by itsel 3 Compute the once Products Division's margin, tumove and ROI for next year uning that it perform the same one year and add the new product in ou are in no HOVOJ Dosition would bccept and the new.oroduct line 1. Compute the Office Products Division's margin, turnover, and ROI for this year. 2 Compute the Office Products Division's margin, turnover, and ROI for the new product line by itselt. 3. Compute the Office Products DMision's margin, turnover, and ROI for next year assuming that it performs the same as this year and adds the new product line. 4. If you were in Dell Havas's position, would you accept or reject the new product line? 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? 6. Suppose that the company's minimum required rote of return on operating assets is 16% and that performance is evaluated using residual income. a. Compute the Office Products Division's residual income for this year. b. Compute the Omce Products Division's residual income for the new product line by itself, Compute the Office Products Division's residual income for next year assuming that it performs the same as this year and adds the new product line, d. Using the residual income approach. If you were in Dell Havasi's position, would you accept or reject the new product line? Complete this question by entering your answers in the tabs below. Reg 1 to 3 Reg 4 Reg 5 Reg 6A to 6C Req 60 1. Compute the Office Products Division's margin, turnover, and ROI for this year. 2. Compute the Office Products Division's margin, turnover and ROI for the new product line by itself 3. Compute the Office Products Division's margin, turnover, and ROI for next year assuming that it performs the same as this year and adds the new product line. (De retround intermediate calculations. Round your answers to 2 decimal places.) Show less for the year 2 RO for the new product he by the RO for next yet 23.001% 16
