Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 any move. 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 on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the companys Office Products Division for the most recent year are given below:

Sales $ 21,100,000
Variable expenses 13,350,400
Contribution margin 7,749,600
Fixed expenses 5,935,000
Net operating income $ 1,814,600
Divisional operating assets $ 4,220,000

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 $2,262,500. The cost and revenue characteristics of the new product line per year would be:

Sales $ 9,050,000
Variable expenses 65% of sales
Fixed expenses $ 2,534,000

Compute the Office Products Divisions ROI for the most recent year; also compute the ROI as it would appear if the new product line is added. (Round the "Margin", "Turnover" and "ROI" answers to 2 decimal places.)

Suppose that the companys minimum required rate of return on operating assets is 16.00% and that performance is evaluated using residual income.

a.

Compute the Office Products Divisions residual income for the most recent year; also compute the residual income as it would appear if the new product line is added.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Auditing And Other Assurance Services

Authors: Ray Whittington, Kurt Pany

19th International Edition

125909524X, 9781259095245

More Books

Students also viewed these Accounting questions

Question

f. What stereotypes were reinforced in the commercials?

Answered: 1 week ago

Question

c. What groups were least represented? Why do you think this is so?

Answered: 1 week ago

Question

7. Describe phases of multicultural identity development.

Answered: 1 week ago