M G H 1 "know headquarters want us to add that new product line," said Dell Hayasi mange af Billings Company's Office Products Division "Blut! 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 2 any letdown." 3 4 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 Of Operating results for the company's Office Products Division for this year are $ given below: 6 7 Sales $ 22,000,000 % Variable expenses 14,000,000 9 Contribution margin 8,000,000 10 Fixed expenses 6,000,000 11 Net operating income $ 2,000,000 12 Divisional average operating assets S 4,000,000 Divisional average non operating sets 13 $ 2,000,000 14 15 The company had an overall return on investment (ROI) of 17.00% this year (considering all division Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increan average operating ass by $2,755.000 16 The cost and revenue characteristics of the new product line per year would be: 12 59,000,000 19 Variable expenses 65% of sales 20 Fixed expenses $2.500.000 21 22 2 Required: 24 1 Compute the Office Products Division's Rol for this 25 36 27 7 2. Compare the Office Products Division's ROI for the potential new product is by itself 29 30 31 3. Compute the ome Product Division's combined ROI for next year iming that it perform theme this year and is the new product line 33 18 Sales 34 Instructions 9 10 11 12 + Paste BIU MAM - $ % 9 Format as Table cel Styles A14 fix X A B C D E F G H 2.3. Compute the Omce Products Division's combined ROI for next year assuming that it performs the same as this year and adds the new product line. 3 14 35 36 37 4. If you were in Doll Hayasia position, would you accept or reject the new product line? 38 39 40 41 6. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? 42 45 6. Suppose that the company's minimum required rate of return on operating assets is 15% and that performance is evaluated aslag residual income 46 47. Compute the Office Products Division's residual income for this year 46 49 50 51 b. Compute the Office Products Divisions residual income for the potential new product line by itself 52 53 54 5 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 SU 52 50 59 Using the residual income approach, you were in Dell Havasis position, would you accept or reject the new product line? 00 51 64 53 25 17 6 70 22 M G H 1 "know headquarters want us to add that new product line," said Dell Hayasi mange af Billings Company's Office Products Division "Blut! 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 2 any letdown." 3 4 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 Of Operating results for the company's Office Products Division for this year are $ given below: 6 7 Sales $ 22,000,000 % Variable expenses 14,000,000 9 Contribution margin 8,000,000 10 Fixed expenses 6,000,000 11 Net operating income $ 2,000,000 12 Divisional average operating assets S 4,000,000 Divisional average non operating sets 13 $ 2,000,000 14 15 The company had an overall return on investment (ROI) of 17.00% this year (considering all division Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increan average operating ass by $2,755.000 16 The cost and revenue characteristics of the new product line per year would be: 12 59,000,000 19 Variable expenses 65% of sales 20 Fixed expenses $2.500.000 21 22 2 Required: 24 1 Compute the Office Products Division's Rol for this 25 36 27 7 2. Compare the Office Products Division's ROI for the potential new product is by itself 29 30 31 3. Compute the ome Product Division's combined ROI for next year iming that it perform theme this year and is the new product line 33 18 Sales 34 Instructions 9 10 11 12 + Paste BIU MAM - $ % 9 Format as Table cel Styles A14 fix X A B C D E F G H 2.3. Compute the Omce Products Division's combined ROI for next year assuming that it performs the same as this year and adds the new product line. 3 14 35 36 37 4. If you were in Doll Hayasia position, would you accept or reject the new product line? 38 39 40 41 6. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? 42 45 6. Suppose that the company's minimum required rate of return on operating assets is 15% and that performance is evaluated aslag residual income 46 47. Compute the Office Products Division's residual income for this year 46 49 50 51 b. Compute the Office Products Divisions residual income for the potential new product line by itself 52 53 54 5 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 SU 52 50 59 Using the residual income approach, you were in Dell Havasis position, would you accept or reject the new product line? 00 51 64 53 25 17 6 70 22