Question
tI know headquarters wants us to add that new product line, said Dell Havasi, manager of Billings Companys Office Products Division. But I want to
tI know headquarters wants us to add that new product line, said Dell Havasi, manager of Billings Companys Office Products Division. But I want to see the numbers before I make any move. Our divisions return on investment (ROI) has led the company for three years, and I dont want any letdown. |
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 ROIs. Operating results for the companys Office Products Division for the most recent year are given below:
Sales $21,600,000 Variable expenses 13,622,600 Contribution margin 7,977,400 Fixed expenses 6,010,000 Net operating income$1,967,400 Divisional operating assets$4,499,200 The company had an overall return on investment (ROI) of 17.00% 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 $2,326,200. The cost and revenue characteristics of the new product line per year would be:
Sales $ 9,300,000 Variable expenses 65% of sales Fixed expenses $ 2,557,400
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