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I know headquarters wants us to add that new product line, said Dell 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 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." 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 company's 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 Requirement 1: Compute the Office Products Division's ROI for the most recent year; also compute the ROI as it would appear if the new product line is added. (Round your answers to 1 decimal place. Omit the "%" sign in your response.) ROI Present % New Line % Total for company % I calculated that Present is 20% and total for the company is 19.2% but I can't get the correct ROI for New Line. Please help calculate the ROI for New Line.
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