Business, 07.05.2020 01:57, demetriascott20
"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 ROIs. Operating results for the company's Office Products Division for the most recent year are given below:
Sales $10,000,000
Variable expenses 6,000,000
Contribution margin 4,000,000
Fixed expenses 3,200,000
Net operating income $800,000
Divisional operating assets $4,000,000
The company had an overall return on investment (ROI) of 15% 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 $1,000,000. The cost and revenue characteristics of the new product line per year would be:
Sales $2,000,000
Variable expenses 60% of sales
Fixed expenses $640,000
Requirement 1:
Compute the Office Products Division's ROI for the most recent year; also compute the ROI as it would appear if the new product line is added. (Round your answers to 1 decimal place. Omit the "%" sign in your response.)
ROI
Present %
New Line %
Total for company %
I calculated that Present is 20% and total for the company is 19.2% but I can't get the correct ROI for New Line. Please help calculate the ROI for New Line.
Answers: 3
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"I know headquarters wants us to add that new product line," said Dell Havasi, manager of Billings C...
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