\"I know headquarters wants us to that new product line,\" said Dell Havasi, man
ID: 2479324 • Letter: #
Question
"I know headquarters wants us to that new product line," said Dell Havasi, manager of Billings Company's Office Products Division. "But I want to see the numbers before I 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 ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. 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 5,995,000 Net operating income $1,940,000 Divisional operating assets $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 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 $9,255,000 Variable expenses 65% of sales Fixed expenses $2,552,650 Required: 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. (Do not round intermediate calculations. Round your Turnover answers to 2 decimal places. Round your Margin and ROI percentage to 2 decimal places (i.e., 0.1234 should be entered as 12.34.)Explanation / Answer
Present New Line Total $ $ $ Sales 21,500,000 9,255,000 30,755,000 Net operating income 1,940,000 686,600 2,626,600 Operating assets 4,301,500 2,313,700 6,615,200 Margin 9.02% 7.42% 8.54% Turnover 5 4 4.65 ROI 45.1% 29.68% 39.71%
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