"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 ROIs. Operating results for the company's Office Products Division for the most recent year are given below:

Sales	$21,600,000
Variable expenses	13,710,800
Contribution margin	7,889,200
Fixed expenses	6,053,200
Net operating income	$1,836,000
Divisional operating assets	$5,400,000

The company had an overall return on investment (ROI) of 15% 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 $2,960,000. The cost and revenue characteristics of the new product line per year would be:

Sales	$8,880,000
Variable expenses	60% of sales
Fixed expenses	$2,948,160

Requirement 1:

Compute the Office Products Division's ROI for the most recent year; also compute the ROI as it would appear if the new product line is added.(Round interim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)

	Return on Investment (ROI)
Present	_________________%
New Line	_________________%
Total for company	_________________%

Requirement 2:

Suppose that the company's minimum required rate of return on operating assets is 15% and that performance is evaluated using residual income.

(a)

Compute the Office Products Division's residual income for the most recent year; also compute the residual income as it would appear if the new product line is added. (Omit the "$" sign in your response.)

Residual Income
Present	_________________%
New Line	_________________%
Total for company	_________________%