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 divisions return on investment (ROI) has led the company for three years, and I dont 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 companys East Division for last year are given below:

Sales$22,600,000

Variable expenses14,157,400

Contribution margin8,442,600

Fixed expenses6,160,000

Net operating income $2,282,600

Divisional operating assets $4,520,000

The company had an overall ROI of 16.00% last year (considering all divisions). The companys East Division has an opportunity to add a new product line that would require an investment of $2,450,000. The cost and revenue characteristics of the new product line per year would be as follows:

Sales$ 9,800,000

Variable expenses65% of sales

Fixed expenses$ 2,595,000

Required:1.Compute the East Divisions ROI for last year; also compute the ROI as it would appear if the new product line is added.(Round your intermediate calculations and the "Turnover", "ROI"answers and "Margin" answers to 2 decimal places.)

Present Newline Total

Sales$

Net operating income

Operating assets

Margin

Turnover

ROI

4.Suppose that the companys minimum required rate of return on operating assets is 13.00% and that performance is evaluated using residual income.

a.Compute the East Divisions residual income for last year; also compute the residual income as it would appear if the new product line is added.

Present New Line Total Operating assets Minimum required return Minimum net operating income actual net operating income Minimum net operating income Residual income