Transcribed Image Text
“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 expenses164,500,000 Contribution margin70,500,000 Less: Fixed expenses56,400,000 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 expenses70% of sales Fixed expenses$11,280,000Required: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%).)presentnew linetotalROI2.If you were in Dell Havasi’s position, would you be inclined toaccept or reject the new product line? AcceptReject3.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.presentnew linetotalROI b.Under these circumstances, if you were in Dell Havasi’sposition, would you accept or reject the new product line? AcceptReject