Billings Company is a decentralized wholesaler with five autonomous divisions. T
ID: 2505256 • 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 $2,650,000. The cost and revenue characteristics of the new product line per year would be:
Compute the Office Products Division's residual income for the most recent year; also compute the residual income as it would appear if the new product line is added. (Omit the "$" 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
residual income present = 6000000*0.15 - 1800000 = -900000
for new line = 2650000*0.15 - 522580 = -125080
total residual income = 8650000*0.15 - 960000 = -1025080
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