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

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Accounting

I know headquarters wants us to add that new product line, said Dell Havasi, manager of Billings Companys Office Products Division. But I want to see the numbers before I make a decision. Our divisions return on investment (ROI) has led the company for three years, and I dont want any letdown.
Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated using ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the companys Office Products Division for this year are given below:
Sales $ 22,100,000
Variable expenses 13,893,400
Contribution margin 8,206,600
Fixed expenses 6,085,000
Net operating income $ 2,121,600
Divisional average operating assets $ 5,200,000
The company had an overall return on investment (ROI) of 16.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product requiring $2,387,500 of additional average operating assets. The annual cost and revenue estimates for the new product would be:
Sales $ 9,550,000
Variable expenses 65% of sales
Fixed expenses $ 2,578,500
Required:
Compute the Office Products Divisions margin, turnover, and ROI for this year.
Compute the Office Products Divisions margin, turnover, and ROI for the new product by itself.
Compute the Office Products Divisions margin, turnover, and ROI for next year assuming it performs the same as this year and adds the new product.
If you were in Dell Havasis position, would you accept or reject the new product?
Why do you suppose headquarters is anxious for the Office Products Division to add the new product?
Suppose the companys minimum required rate of return on operating assets is 12% and performance is evaluated using residual income.
Compute the Office Products Divisions residual income for this year.
Compute the Office Products Divisions residual income for the new product by itself.
Compute the Office Products Divisions residual income for next year assuming it performs the same as this year and adds the new product.
Using the residual income approach, if you were in Dell Havasis position, would you accept or reject the new product? Complete this question by entering your answers in the tabs below.
Required 4
Required 5
Required 6A to
Required 6D
Using the residual income approach, if you were in Dell Havasi's position, would you accept or reject the new product? Complete this question by entering your answers in the tabs below.
Required 1 to
3
Required 4
Required 5
Required 6A to
6C
Required 6D
Suppose the company's minimum required rate of return on operating assets is 12% and performance is evaluated using
residual income.
a. Compute the Office Products Division's residual income for this year.
b. Compute the Office Products Division's residual income for the new product by itself.
c. Compute the Office Products Division's residual income for next year assuming it performs the same as this year and adds
the new product.
Residual income for this year
Residual income for the new product line by itself
Residual income for next year Complete this question by entering your answers in the tabs below.
Required 1 to
3
Required 4
Required 5
Required 6A to
6C
Required 6D
Why do you suppose headquarters is anxious for the Office Products Division to add the new product? Required 1 to
3
Required 4
Required 5
Required 6A to
6C
Required 6D
If you were in Dell Havasi's position, would you accept or reject the new product?Compute the Office Products Division's margin, turnover, and ROI for this year.
Compute the Office Products Division's margin, turnover, and ROI for the new product by itself.
Compute the Office Products Division's margin, turnover, and ROI for next year assuming it performs the same as this yeal
and adds the new product.
Note: Do not round intermediate calculations. Round your answers to 2 decimal places.
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