“I know headquarters wants us to add that new product line,” said Dell Havasi, m
ID: 2464325 • Letter: #
Question
“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.”
“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.”
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 l 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 ROl, 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 $ 21,902,000 Variable expenses 13,788,600 Contribution margin 8,113,400 Fixed expenses Net operating income Divisional operating assets 6,055,000 $2,058,400 $ 4,562,500 The company had an overall return on investment (ROI) of 18.00% 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 $2,250,500. The cost and revenue characteristics of the new product line per year would be Sales Variable expenses Fixed expenses $ 9,450,000 65% of sales $2,570,200Explanation / Answer
1.
Office product's division ROI for the most recent year is shown as below:
Return on investment is calculated using the below-mentioned formula:
Return on Investment = Income/Invested Capital
2.
I will reject the new product line as the ROI is decreasing post addition of new product line.
3.
Headquarters is anxious to add the new product line as it will decrease the company's overall ROI.
Particulars Amount ($) Sales 94,50,000 Variable expenses 61,42,500 Contribution Margin 33,07,500 Fixed expenses 25,70,200 Net operating income 7,37,300Related Questions
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