\"I know headquarters wants us to add that new product line,\" said Fred Hallowa

Question

"I know headquarters wants us to add that new product line," said Fred Halloway, manager of Kirsi Products' East Division. "But I want to see the numbers before I make a move. Our division's return on investment (ROl) has led the company for three years, and I don't want any letdown." Kirsi Products is a decentralized wholesaler with four autonomous divisions. The divisions are evaluated on the basis of ROl, with year-end bonuses given to divisional managers who have the highest ROI Operating results for the company's East Division for last year are given below: $ 22,045,000 Sales Variable expenses 13,882,000 Contribution margin Fixed expenses 8,163,000 6,070,000 2,093,000 $ 5,500,000 Net operating income Divisional operating assets The company had an overall ROI of 16.00% last year (considering all divisions). The company's East Division has an opportunity to add a new product line that would require an investment of $2,501,500. The cost and revenue characteristics of the new product line per year would be as follows: Sales Variable expenses Fixed expenses $9,500,000 65% of sales $2,574,100 Required 1. Compute the East Division's ROl for last year; also compute the ROl as it would appear if the new product line is added. (Round your intermediate calculations and the "Turnover", "ROi" answers and "Margin" answers to 2 decimal places.)

Explanation / Answer

"I know headquarters wants us to add that new product line," said Fred Hallowa

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