"I know headquarters wants us to add that new product line," said Dell Havasi, manager...
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"I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings 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." 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 ROls. Operating results for the company's Office Products Division for the most recent year are given below: Sales $23,000,000 Variable expenses 14,365,000 Contribution margin 8,635,000 Fixed expenses Net operating income Divisional operating assets 6,220,000 $ 2,415,000 S 5,001,000 The company had an overall return on investment (ROI) of 16.00% 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 $2,501,000. The cost and revenue characteristics of the new product line per year would be: Sales Variable expenses Fixed expenses $10,100,000 65% of sales $2,644,900
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