"I know headquarters wants us to add that new product line," said Fred Halloway, manager of Kirsi Products' East Division. "But I want to see the numbers before I make a move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown." Kirsi Products is a decentralized wholesaler with four autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to divisional managers who have the highest ROI. Operating results for the company's East Division for last year are given below: Sales $ 23,200,000 Variable expenses 14,000,000 Contribution margin 9,200,000 Fixed expenses 7,297,600 Net operating income $ 1,902,400 Divisional operating assets $ 5,800,000 The company had an overall ROI of 18% last year (considering all divisions). The company's East Division has an opportunity to add a new product line that would require an investment of $3,040,000. The cost and revenue characteristics of the new product line per year would be as follows: Sales $8,816,000 Variable expenses 65% of sales Fixed expenses $ 2,468,480 Compute the East Division s ROI for last year; also compute the ROI as it would appear if the company performed the same as last year and added the new product line. (Do not round intermediate percentage values. Round other intermediate calculations and final answers to 2 decimal places.) ROI Present New product line alone Total If you were in Fred Halloway's position, would you accept or reject the new product line? Accept Reject Why do you suppose headquarters is anxious for the East Division to add the new product line? Adding the new line would increase the company's overall ROI. Adding the new line would decrease the company's overall ROI. Suppose that the company's minimum required rate of return on operating assets is 15% and that performance is evaluated using residual income. Compute the East Division's residual income for last year, also compute the residual income as it would appear if the company performed the same as last year and added the new product line. Residual income Present New product line alone Total Under these circumstances, if you were in Fred Halloway's position would you accept or reject the new product line? "I know headquarters wants us to add that new product line," said Fred Halloway, manager of Kirsi Products' East Division. "But I want to see the numbers before I make a move. Our division's return on investment (ROI) has led the company for three years, and I don't want any letdown." Kirsi Products is a decentralized wholesaler with four autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to divisional managers who have the highest ROI. Operating results for the company's East Division for last year are given below: Sales $ 23,200,000 Variable expenses 14,000,000 Contribution margin 9,200,000 Fixed expenses 7,297,600 Net operating income $ 1,902,400 Divisional operating assets $ 5,800,000 The company had an overall ROI of 18% last year (considering all divisions). The company's East Division has an opportunity to add a new product line that would require an investment of $3,040,000. The cost and revenue characteristics of the new product line per year would be as follows: Sales $8,816,000 Variable expenses 65% of sales Fixed expenses $ 2,468,480 Compute the East Division s ROI for last year; also compute the ROI as it would appear if the company performed the same as last year and added the new product line. (Do not round intermediate percentage values. Round other intermediate calculations and final answers to 2 decimal places.) ROI Present New product line alone Total If you were in Fred Halloway's position, would you accept or reject the new product line? Accept Reject Why do you suppose headquarters is anxious for the East Division to add the new product line? Adding the new line would increase the company's overall ROI. Adding the new line would decrease the company's overall ROI. Suppose that the company's minimum required rate of return on operating assets is 15% and that performance is evaluated using residual income. Compute the East Division's residual income for last year, also compute the residual income as it would appear if the company performed the same as last year and added the new product line. Residual income Present New product line alone Total Under these circumstances, if you were in Fred Halloway's position would you accept or reject the new product line
