I know headquarters wants us to add that new product line," sald 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 this year are given below. Sales Variable expenses Contribution margin Fixed expenses Net operating income Divisional average operating assets $ 22,505, eee 14,105,5ee 8,399,5ee 6.145.ee $ 2.254. see 4.687.500 The company had an overall return on Investment (ROI) of 17.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional Investment that would increase average operating assets by $3.261,000. The cost and revenue characteristics of the new product line per year would be: Sales Variable expenses Fixed expenses 59,750.ee 65% of sales $2,595,300 Required: 1. Compute the Office Products Division's ROI for this year. 2. Compute the Office Products Division's ROI for the new product line by itselt 3. Compute the Office Products Division's ROI for next year assuming that it performs the same as this year and adds the new product line 4. If you were in Dell Havasi's position, would you accept or reject the new product line? 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? 6 Suppose that the company's minimum required rate of return on operating assets is 14% and that performance is evaluated using residual income. Compute the Office Products Division's residual income for this year. b. Compute the Office Products Division's residual income for the new product line by itself cCompute the Office Products Division's residual income for next year assuming that it performs the same as this year and adds the new product line d. Using the residual income approach, you were in Del Havasis position, would you accept or reject the new productie? "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 this year are given below. $ 22,50s,eee es, See Sales Variable expenses Contribution margin Fixed expenses Net operating income Divisional average operating assets 4,687, see The company had an overall return on investment (ROI) of 17.00% this year (considering al divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $3.261.000. The cost and revenue characteristics of the new product line per year would be: Variable expenses Fixed expenses 59,75e,eee of sales 32.595,00 Required: 1. Compute the Office Products Division's ROI for this year 2 Compute the Office Products Division's ROI for the new product line by itselt 3. Compute the Office Products Division's ROI for next year assuming that it performs the same as this year and adds the new product 4. If you were in Dell Havasi't position would you accept or reject the new product inne? 5. Why do you suppose headquarters londous for the Office Products Division to add the new product line? 6. Suppose that the companys minimum required Tote of return on operating slet is 14 and that performance is evaluated using residus income 3. Comoute the Office Products Division's residual income for this year 6. Compute the orice products D on's residual income for the new product line by itself comote the Office Products I nseridolincome forney assung performs are as this year and Dad the income Borrower Dell AVE POD WODYou cestor tercer "I know headquarters wants us to add that new product line," sald Dell Ha "But I want to see the numbers before I make any move. Our division's re! and I don't want any letdown." Billings Company is a decentralized wholesaler with five autonomous divis year-end bonuses given to the divisional managers who have the highest Division for this year are given below: Sales Variable expenses Contribution margin Fixed expenses Net operating income Divisional average operating assets $ 22,585, eee 14, 1es, see 8,399,582 6,145,888 2,254 see $ 4,687, 5ee The company had an overall retum on Investment (ROI) of 1700% this year o Division has an opportunity to add a new product line that would require an operating assets by $3.261.000. The cost and revenue characteristics of the Seles Varasle expenses et enese 5 es Required: 1. Compute the Office Products Division's ROI for this year. 2. Compute the Office Products Division's ROI for the new product line by itselt. 3. Compute the Office Products Division's ROI for next year assuming that it performs the same as this year and adds the new product line. 4. If you were in Dell Havasi's position, would you accept or reject the new product line? 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? 6. Suppose that the company's minimum required rate of return on operating assets is 14% and that performance is evaluated using residual income. a Compute the Office Products Division's residual income for this year b. Compute the Office Products Division's residual income for the new product line by itself c. Compute the Office Products Division's residual income for next year assuming that it performs the same as this year and adds the new product line. d. Using the residual income approach, if you were in Dell Havasi's position, would you accept or reject the new product line? Complete this question by entering your answers in the tabs below. Reg 1 to 3 Reg 4 Reg 5 Req6A to 6C Reg 6D 1. Compute the Office Products Division's ROI for this year 2. Compute the office Products Divisions ROT for the new product line by itself. 3. Compute the Office Products Division's ROI for next year assuming that it performs the same as this year and adds the new product line. Do not round intermediate calculations. Round your answer to decimal places) Show less of the 2 ROI for the new arcutia H4>
