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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
I know headquarters wants us to add that new product line, said Dell Havasi, manager of Billings Companys Office Products Division. But I want to see the numbers before I make a decision. Our divisions return on investment ROI has led the company for three years, and I dont want any letdown.
Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated using ROI, with yearend bonuses given to the divisional managers who have the highest ROIs. Operating results for the companys Office Products Division for this year are given below:
Sales $
Variable expenses
Contribution margin
Fixed expenses
Net operating income $
Divisional average operating assets $
The company had an overall return on investment ROI of this year considering all divisions Next year the Office Products Division has an opportunity to add a new product requiring $ of additional average operating assets. The annual cost and revenue estimates for the new product would be:
Sales $
Variable expenses of sales
Fixed expenses $
Required:
Compute the Office Products Divisions margin, turnover, and ROI for this year.
Compute the Office Products Divisions margin, turnover, and ROI for the new product by itself.
Compute the Office Products Divisions margin, turnover, and ROI for next year assuming it performs the same as this year and adds the new product.
If you were in Dell Havasis position, would you accept or reject the new product?
Why do you suppose headquarters is anxious for the Office Products Division to add the new product?
Suppose the companys minimum required rate of return on operating assets is and performance is evaluated using residual income.
Compute the Office Products Divisions residual income for this year.
Compute the Office Products Divisions residual income for the new product by itself.
Compute the Office Products Divisions residual income for next year assuming it performs the same as this year and adds the new product.
Using the residual income approach, if you were in Dell Havasis position, would you accept or reject the new product?Problem Algo Return on Investment ROI and Residual Income LO LO
"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 yearend
bonuses given to the divisional managers who have the highest ROls. Operating results for the company's Office Products Division for
this year are given below:
The company had an overall return on investment ROI of this year considering all divisions Next year the Office Products
Division has an opportunity to add a new product requiring $ of additional average operating assets. The annual cost and
revenue estimates for the new product would be:
Sales
Variable expenses
$
Fixed expenses
$
Required:
Compute the Office Products Division's margin, turnover, and ROI for this year.
Compute the Office Products Division's margin, turnover, and ROI for the new product by itself.
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.
If you were in Dell Havasi's position, would you accept or reject the new product?
Why do you suppose headquarters is anxious for the Office Products Division to add the new product?
Suppose the company's minimum required rate of return on operating assets is 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?
Complete this question by entering your answers in the tabs below.
Compute the Office Products Division's margin, turnover, and ROI for this year.
Compute the Office Products Division's margin, turnover, and ROI for the new product by itself.
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.
Note: Do not round intermediate calculations. Round your answers to decimal places
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