Question
need help with 4a chart please
App s Door man jobs-Inde 11 Bons d'Argent on De D Product Dunk NDH McGraw-Hill ConnectWelcome, Bryan 1 know headquarters wants us to add that new product line."said Dell Havasi, manager of Bilings 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. Bilings 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 ROls Operating results for the company's Office Products Division for the most recent year are given below Sales S 22,440, 000 Variable expenses 14,094.600 Contrbution margin 8.345,400 Fixed expenses Net operating income Divisional operating assets 6.130,000 $ 2215 400 S 4480 000 The company hac an overail return on investment ROl) of 18 009% last year (considering all divisions) The Office Products Division has an opportunity to add a new product ine that would require an additional investment in operating assets of $2 430 600 The oost and revenue characteristics of the new product line per year would be Sales Vernable expenses Fixed expense s 9705 000 65% of sales $2 591 710
Explanation / Answer
4a) Calculate residual income :
Present New line Total Operating assets 4480000 2430600 6910600 Minimum required rate of return 15% 15% 15% Minimum operating income 672000 364590 1036590 Actual net operating income 2215400 805040 3020440 Minimum operating income 672000 364590 1036590 Residual income 1543400 440450 1983850
