3 value: 10.00 points \"I know headquarters wants us to add that new product lin

Question

3 value: 10.00 points "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 the most recent year are given below: Sales $ 22,835,000 Variable expenses 14,297,200 Contribution margin 8,537,800 Fixed expenses Net operating income Divisional operating assets 6,190,000 $ 2,347,800 $ 4,000,000 The company had an overall return on investment (ROI) of 17.00% 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 $2,755,000. The cost and revenue characteristics of the new product line per year would be Sales Variable expenses Fixed expenses $9,915,000 65% of sales $2,607,450

Explanation / Answer

Answer 1:

Answer 2: Accept

Answer 3:Adding the new product line would increase the company's overall ROI

Answer 4:

a)

b)

Present New Line Total Sales 22835000 9915000 32750000 Net Operating Income 2347800 6444750 8792550 Operating Assets 4000000 2755000 6755000 Margin 10.28% 23.68% 7.17% turnover 5.7 3.6 4.8 ROI 58.70% 233.93% 130.16%

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