Question
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 | $ | 22,835,000 |
Variable expenses | 14,297,200 | |
Contribution margin | 8,537,800 | |
Fixed expenses | 6,190,000 | |
Net operating income | $ | 2,347,800 |
Divisional operating assets | $ | 4,000,000 |
The company had an overall return on investment (ROI) of 17.00% 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 $2,755,000. The cost and revenue characteristics of the new product line per year would be: |
Sales | $ 9,915,000 |
Variable expenses | 65% of sales |
Fixed expenses | $ 2,607,450 |
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.)
I get one more attempt at a correct answer. Can someone help me get the correct answer?
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