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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 want to see
"I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings Company's Office Products Division. "But want to see the numbers before l 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 21,600,000 Sales Variable expenses 13,622,600 7,977,400 Contribution margin Fixed expenses 6,010,000 Net operating income 1,967,400 4,499,200 Divisional operating assets The company had an overall return on investment (RO) 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 S2,326,200. The cost and revenue characteristics of the new product line per year would be: Sales 9,300,000 Variable expenses 65% of sales Fixed expenses 2,557,400
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