know headquarters wants us to add that new product line, said Dell Havasi, manag
ID: 2476807 • Letter: K
Question
know headquarters wants us to add that new product line, said Dell Havasi, manager of Billings Company's Office Products Division. "But I want to see the numbers before l make any move. Our division's return 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 evaluated on the basis of Rol, with year-end bonuses given to the divisional managers who have the highest ROls. Operating results for the company's Office Products Division for the most recent year are given below Sales $ 21,500,000 Variable expenses 13,565,000 Contribution margin 7,935,000 Fixed expenses Net operating income Divisional operating assets 5,995,000 $ 1,940,000 $ 4,301,500 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 $2,313,700. The cost and revenue characteristics of the new product line per year would be Sales Variable expenses Fixed expenses $ 9,255,000 65% of sales $2,552,650 Required: 1. Compute the Office Products Division's ROI for the most recent year, also compute the ROl as it would appear if the new product line is added. (Do not round intermediate calculations. Round your Turnover answers to 2 decimal places. Round your Margin and ROI percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34).) Present New Line Total Sales Net operating income Operating assets Margin Turnover ROIExplanation / Answer
Calculation of net Income for new line
Answer 1
Answer 2
I would have rejected it, as it reduces overall all return.
Answer 3
Adding the new line would increase the company’s overall ROI.
Answer 4 a
4301500
Answer 4b
Accept
Sales 9255000 Variabel Expenses 6015750 Contribution MArgin 3239250 Fixed Cost 2552650 Net Operating Income 686600Related Questions
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