$$I know headquarters wants us to add that new product line,$$ said Dell Havasi, manager of Billings Company$$s Office Products Division. $$But I want to see the numbers before I make a decision. 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 using 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:

Sales $ $22,100,000$

Variable expenses $13,893,400$

Contribution margin $8,206,600$

Fixed expenses $6,085,000$

Net operating income $ $2,121,600$

Divisional average operating assets $ $5,200,000$

The company had an overall return on investment $($ROI$)$ of $16\mathrm{.}00\%$ this year $($considering all divisions$).$ Next year the Office Products Division has an opportunity to add a new product requiring $$2,387,500$ of additional average operating assets. The annual cost and revenue estimates for the new product would be:

Sales $ $9,550,000$

Variable expenses $65\%$ of sales

Fixed expenses $ $2,578,500$

Required:

$1.$ 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 by itself.

$3.$ Compute the Office Products Division$$s margin, turnover, and ROI for next year assuming it performs the same as this year and adds the new product.

$4.$ If you were in Dell Havasi$$s position, would you accept or reject the new product?

$5.$ Why do you suppose headquarters is anxious for the Office Products Division to add the new product?

$6.$ Suppose the company$$s minimum required rate of return on operating assets is $12\%$ and performance is evaluated using residual income.

a$.$Compute the Office Products Division$$s residual income for this year.

b$.$ Compute the Office Products Division$$s residual income for the new product by itself.

c$.$ Compute the Office Products Division$$s residual income for next year assuming it performs the same as this year and adds the new product.

d$.$ Using the residual income approach, if you were in Dell Havasi$$s position, would you accept or reject the new product?