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

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Accounting

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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 (ROl) 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 this year are given below Sales Variable expenses Contribution margin Pixed expenses Net operating income Divisional average operating assets 22, 700, 000 4.363,700 8,336,300 6.175,000 2,161,300 5,675,000 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 line that would require an additional investment that would increase average operating assets by $3,938,000. The cost and revenue characteristics of the new product line per year would be Sales Variable expenses Fixed expenses 9,800,000 658 of sales $2,582,900

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