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.

P.34 Company's Office Products Division. "But I want to see the numbers before I make any move. Our divi- "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 return on investment (ROI) has led the company for three years, and I don't want any letdown? 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- Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are below: Sales Variable expenses Contribution margin Fixed expenses Net operating income Divisional operating assets $10,000,000 6,000,000 4,000,000 3,200,000 $ 800,000 $ 4,000,000 The company had an overall return on investment (ROI) of 15% 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 $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