Billings Company is a decentralized wholesaler with five autonomous divisions. T
ID: 2505254 • Letter: B
Question
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:
15,416,000
6,784,000
$1,800,000
$6,000,000
The company had an overall return on investment (ROI) of 15% 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 $2,650,000. The cost and revenue characteristics of the new product line per year would be:
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.(Round interim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)
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:
Explanation / Answer
1.ROI present = 1800000/6000000 = 30%
new line = 522580//net income of new line//
increase in net income = 522580. increase in assets = 2650000
so ROI new line = 19.72%
overall ROI = 1800000+522580 /8650000 = 26.85%
answers
present = 30%
new line = 19.72%
Total for company = 26.85%
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