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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 Variable expenses $ 21,400,000 13,515,400 Contribution margin Fixed expenses 7,884,600 5,980,000 Net operating income $ 1,904,600 Divisional operating assets $ 5,350,000 The company had an overall return on investment (ROI) of 16.00% 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 $2,875,000. The cost and revenue characteristics of the new product line per year would be: Sales Variable expenses Fixed expenses $ 9,200,000 65% of sales $ 2,548,400
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