Question 2: Financial Performance Measurement Systems [24 marks] Question 2.1 Datavision is a retailer of electrical products and has five autonomous divisions. At the end of each year, the five divisional managers are evaluated, and bonuses are awarded based on ROI. The company had an overall return on investment (ROI) of 17 per cent this year (considering all divisions). Operating results for the company's Electromart Division for this year are given below: Sales Variable expenses Contribution margin Fixed expenses Net operating income Divisional average operating assets $21,500,000 13,565,000 7,935,000 5,995,000 $1,940,000 $4,301,500 Next year the Electromart Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $2,313,700. The cost and revenue characteristics of the new product line per year would be: Sales $9,255,000 Variable expenses 65% of sales Fixed expenses $2,552,650 Required: Question 2.1.1 If you were the manager of Electromart, would you accept or reject the new product line? Explain your response with supporting evidence. (7 marks) Your Answer (expand the space as required): Question 2.1.2 Assume that Datavision uses the residual income to evaluate performance and desires a minimum required rate of return of 14 per cent on the operating assets. Will the manager of Electromart be likely to change its attitude towards the product line? Explain your response with supporting evidence. (7 marks) Your Answer (expand the space as required): Focus lish (New Zealand)