"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 wholesale 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 this year are given below: Sales Variable expenses Contribution an Fixed expenses Net operating Income Divisional average operating assets $ 22,100,000 11, 193,400 3,206,600 6.005.000 3.121.600 $5,200,000 The company had an overall return on investment (ROI) of 16.00% 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 $2,387,500. The cost and revenue characteristics of the new product line per year would be Sales Variable expenses Mixed expenses 59,550,000 of sales $2,578,500 Required: 1 Compute the Office Products Division's margin, turnover, and ROI for this year, 2. Compute the Office Products Division's margin, turnover and ROI for the new product line by itselt, 3. Compute the Office Products Division's murgin, turnover and 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 12% and that performance is evaluated using residual income Compute the Office Products Division's residual income for this year Compute the Office Products Division's residual income for the new product line by itselt 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 Havas'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 Reg 6D Red 6A to 60 1. Compute the Office Products Division's margin, turnover, and Rot for this year. 2. Compute the Office Products Division's margin, turnover, and Rol for the new product line by itself. 3. Compute the Office Products Division's margin, turnover, and Rol 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 answers to 2 decimal places.) Show less 1 ROI for this year 2 ROI for the new product line by itself 3. ROI for next year % Reg 4 > Complete this question by entering your answers in the tabs below. Reg 1 to 3 Reg4 Reg 5 Reg 6A to 6C Reg 6D 6. Suppose that the company's minimum required rate of return on operating assets is 12% 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. Show less 1 Residual income for this year 2. Residual income for the new product line by itself 3. Residual income for next year Flight Cafe prepares in-flight meals for airlines in its kitchen located next to a local airport. The company's planning budget for July appears below Fight Care Planning Budget For the Month Ended Joly 31 Budgeted meals 24,000 Revenue (34.404) $105.600 Expenses : Raw materials (52.004) 40,000 Moses and salaries (56,100 $0.20) 10,900 Utilities ($2,100. 30.05) 3.300 Facility rent ($3,600) 3,600 Insurance (52,500) 2,500 Miscellaneous (5600 + $0.109) Total expense 71.300 Net operating income $ 34,100 3.000 In July, 25.000 meals were actually served. The company's flexible budget for this level of activity appears below. Fight Care Flexible Budget For the Month Ended July 31 Budgeted meals () 35,000 $110,000 Revenue (14/409) Expenses materials (52.004) ages and salaries (56.1007 10:204) Utilities ($2,100 50.054) Facility rent ($3,600) Insurance (52,500) Miscellaneous ($100. 10.100) Total expense Niet operating income 50,000 11.100 3,30 3.600 2,500 310 2,650 536.350 Answer is complete but not entirely correct. Flight Caf Activity Variances For the Month Ended July 31 Revenue $ 4,400 F Expenses: Raw materials 2,300 X U Wages and salaries 200 U Utilities 50U Facility rent 0 None Insurance Miscellaneous Total expense Net operating income 0 None 100U 2,650 X U 1,750 F $ Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company's operations in July appear below Vulcan Flyovers Operating Data For the Month Ended July 31 Actual Flexible Planning Results Budget Budget Flights (9) 55 55 53 Revenue (5345.000) 5116,300 $ 18,975 $ 13,285 Expenses Wages and salaries (55,000 $37.000) 7.751 7,785 7,611 Fuel (533.004) 1,979 1,815 1,749 Airport fees (5850 + $33.009) 2,530 2,665 2.599 Aircraft depreciation ($9.000) 495 495 477 office expenses (5240 - $1.009) 295 293 Total expense 13,218 13,055 12,229 Net operating income $ 3,082 $ 5,920 55,556 463 The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount Required: 1. Prepare a flexible budget performance report for July that includes revenue and spending variances and activity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (ie, zero variance). Input all amounts as positive values.) Vulcan Flyovers Vulcan Flyovers Flexible Budget Performance Report For the Month Ended July 31 Revenue and Spending Flexible Variances Budget Activity Variances Actual Results Planning Budget 53 55 55 Flights 5 18 285 $ 16,300 $ 18.975 44000 $ 7.751 7.785 Revenue Expenses Wages and salaries Fuel Airport fees Aircraft, depreciation Office expenses 1.979 2.530 495 327 166U 115 1.815 2665 7611 1749 2.599 477 293 463 13.218 O None 1680 187U 4.587 0 495 295 13,055 5.920 Total expense 12.729 5.556 5 $ $ Net operating Income 3,0825