“I know headquarters wants us to add on that new product line,”said Dell Havasi,...

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Accounting

“I know headquarters wants us to add on that new product line,”said Dell Havasi, manager of Billings Company’s office productsdivision. “But I want to see the numbers before I make any move.Our division has led the company for three years, and I don’t wantany letdown.”

     Billings Company is adecentralized organization with five autonomous divisions. Thedivisions are evaluated on the basis of the return that they areable to generate on invested assets, with year-end bonuses given tothe divisional managers who have the highest ROI figures. Operatingresults for the company’s office products division for the mostrecent year are as follows:
  Sales $ 152,500,000
  Less: Variableexpenses 91,500,000
  Contributionmargin 61,000,000
  Less: Fixedexpenses 48,800,000
  Net operatingincome $ 12,200,000
  Divisional operatingassets $ 61,000,000
     The company had an overall ROI of15.5% last year (considering all divisions). The office productsdivision has an opportunity to add a new product line that wouldrequire an additional investment in operating assets of$15,250,000. The cost and revenue characteristics of the newproduct line per year would be as follows:
  Sales $ 30,500,000
  Variable expenses 60 % of sales
  Fixed expenses $ 9,760,000
Required:
1.
Compute the office products division’s ROI for the most recentyear; also compute the ROI if the new product line were added.(Do not round intermediate calculations. Round "Percentage"answers to 2 decimal places, (i.e., 0.1234 should be considered as12.34%).)

2. If you were in Dell Havasi’sposition, would you be inclined to accept or reject the new productline?

Accept
Reject
3. Not available in Connect.

4.
Suppose that the company views a return of 15.0% on investedassets as being the minimum that any division should earn and thatperformance is evaluated by the RI approach.
a.
Compute the office products division’s RI for the most recentyear; also compute the RI as it would appear if the new productline were added.

b.
Under these circumstances, if you were in Dell Havasi’sposition, would you accept or reject the new product line?

Accept
Reject

Answer & Explanation Solved by verified expert

3.8 Ratings (694 Votes)

1 ROI for the most recent year Sales 152500000 Less Variable expenses 91500000 Contribution margin 61000000 Less Fixed expenses 48800000 Net operating income 12200000 Divisional operating assets 61000000 ROI for See Answer

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In: Accounting“I know headquarters wants us to add on that new product line,”said Dell Havasi, manager...“I know headquarters wants us to add on that new product line,”said Dell Havasi, manager of Billings Company’s office productsdivision. “But I want to see the numbers before I make any move.Our division has led the company for three years, and I don’t wantany letdown.” Billings Company is adecentralized organization with five autonomous divisions. Thedivisions are evaluated on the basis of the return that they areable to generate on invested assets, with year-end bonuses given tothe divisional managers who have the highest ROI figures. Operatingresults for the company’s office products division for the mostrecent year are as follows: Sales$152,500,000 Less: Variableexpenses91,500,000 Contributionmargin61,000,000 Less: Fixedexpenses48,800,000 Net operatingincome$12,200,000 Divisional operatingassets$61,000,000 The company had an overall ROI of15.5% last year (considering all divisions). The office productsdivision has an opportunity to add a new product line that wouldrequire an additional investment in operating assets of$15,250,000. The cost and revenue characteristics of the newproduct line per year would be as follows: Sales$30,500,000 Variable expenses60% of sales Fixed expenses$9,760,000Required:1.Compute the office products division’s ROI for the most recentyear; also compute the ROI if the new product line were added.(Do not round intermediate calculations. Round "Percentage"answers to 2 decimal places, (i.e., 0.1234 should be considered as12.34%).) 2.If you were in Dell Havasi’sposition, would you be inclined to accept or reject the new productline? AcceptReject3.Not available in Connect. 4.Suppose that the company views a return of 15.0% on investedassets as being the minimum that any division should earn and thatperformance is evaluated by the RI approach.a.Compute the office products division’s RI for the most recentyear; also compute the RI as it would appear if the new productline were added. b.Under these circumstances, if you were in Dell Havasi’sposition, would you accept or reject the new product line? AcceptReject


Sales	$	152,500,000
Less: Variableexpenses		91,500,000

Contributionmargin		61,000,000
Less: Fixedexpenses		48,800,000

Net operatingincome	$	12,200,000

Divisional operatingassets	$	61,000,000


Sales	$	30,500,000
Variable expenses		60	% of sales
Fixed expenses	$	9,760,000

1.	Compute the office products division’s ROI for the most recentyear; also compute the ROI if the new product line were added.(Do not round intermediate calculations. Round "Percentage"answers to 2 decimal places, (i.e., 0.1234 should be considered as12.34%).)