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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 ROls. Operating results for the company's Office Products Division for the most recent year are given below: Sales S 21,750,000 Variable expenses 13,731,600 Contribution margin 8,018,400 Fixed expenses Net operating income Divisional operating assets 6,025,000 $ 1,993,400 $ 4,338,800 The company had an overall return on investment (ROI) of 18.00% 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 $2,126,350. The cost and revenue characteristics of the new product line per year would be Sales Variable expenses Fixed expenses $9,350,000 65% of sales $2,560,500 Required 1. Compute the Office Products Division's ROl for the most recent year; also compute the ROl as it would appear if the new product line is added. (Round the "Margin", "Turnover" and "ROI" answers to 2 decimal places.) Present New Line Total Sales Net operating income Operating assets Margin Turnover ROI
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