“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	$	235,000,000
Less: Variable expenses		164,500,000
Contribution margin		70,500,000
Less: Fixed expenses		56,400,000
Net operating income	$	14,100,000
Divisional operating assets	$	47,000,000

The company had an overall ROI of11.5% 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$23,500,000. The cost and revenue characteristics of the newproduct line per year would be as follows:

Sales	$	47,000,000
Variable expenses		70	% of sales
Fixed expenses	$	11,280,000

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%).)

	present	new line	total
ROI

2.	If you were in Dell Havasi’s position, would you be inclined toaccept or reject the new product line?
	Accept Reject

3.	Not available in Connect.

4.	Suppose that the company views a return of 11.0% 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.

	present	new line	total
ROI

           

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