Problem 9-18A

1. Compute the Office Products Division's ROI for the most recent year; also compute the ROI as it would appear if the new product line is added.

7 7% Bar 2 ? Net ope Average operating Margin .. Turnover ROI ... Required: and turnover? 1. What advantages are there to breaking down the ROI computation into two separate elements, wargi 2. Fill in the missing information above, and comment on the relative performance of the three companies in as much detail as the data permit. Make specific recommendations about how to improve the ROL (Adapted from National Association of Accountants Research Report No. 35, 0.34) Company's Office Products Division. "But I want to see the numbers before I make any move. Our din "I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings PROBLEM 9-18A Return on Investment (ROI) and Residual Income [L09, LO9-2] sion's retum 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 est ROls. Operating results for the company's Office Products Division for the most recent year are given evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the high below: $10,000,000 6,000,000 ... Sales Variable expenses Contribution margin Fixed expenses Net operating income Divisional operating assets 4,000,000 3,200,000 $ 800,000 $ 4,000,000 ...... The Office Products Division has an opportunity to add a new product line that would require an additional The company had an overall return on investment (ROI) of 15% last year (considering all divisions) investment in operating assets of $1,000,000. The cost and revenue characteristics of the new product line per year would be Sales. Variable expenses Fixed expenses .... .. $2,000,000 60% of sales $640,000