-) ?? ezto.mheducation.com/hm.tpx know headquarters wants us to add that new pro
ID: 2532858 • Letter: #
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-) ?? ezto.mheducation.com/hm.tpx know headquarters wants us to add that new product line, said Del Havasi, manager of Bilings 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 Bilings 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 21,750,000 Variable expenses 13,731,600 Contribution margin 8,018,400 Fxed expenses Net operating income Divisional operating assets 025,000 S 1,993,400 4.338,800 The company had an overall return on investment Ron of 18.00% last year (considering al dvisi ns). The Office Products Division has an opportunity to add a new product ine that would require an additional Investment in oporating assets of $2.126 350 The cost and revenue characteristics of the new product line per year vould be Sales Variable expenses Foxed expenses 9 350 000 65% of sales 2 560 500 Required: 1 Compute the Office Products Dvision's ROI for the most recent year also compute the ROas it sould sopear if the sew product tine is added (Do not round intermediate caiculations. Round your Turnover answers t0 2 decimal places. Round decimal places (e.0.1234 should be e l as 12.34) Type here to searchExplanation / Answer
income on new line contribution (9,350,000*35%)= 3,272,500 less Fixed expense -2,560,500 Net operating income 712000 1,2&3) present new line total Sales 21,750,000 9,350,000 31,100,000 Net operating income 1,993,400 712,000 2,705,400 operating assets 4,338,800 2,126,350 6,465,150 margin 9.17% 7.61% 8.70% turnover 5.01 4.40 4.81 ROI 45.94% 33.48% 41.85% where margin = net operating income/sales turnover = sale/average operating assets ROI = margin *turnover 4) Reject 5) Addint the new product line would improve overall ROI 6) Residual income = net operating income -(average assets *min rate or return) present new line total operating assets 4,338,800 2,126,350 6,465,150 minimum required return 14% 14% 14% min net opeerating income 607432 297689 905121 actual net operating income 1,993,400 712,000 2,705,400 min net operating income 607432 297689 905121 residual income 1,385,968 414,311 1,800,279 b) Accept
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