#1 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: This Year New Line Next Year New product line Info Company Oveall Info: Sales $10,000,000.00 $ 2,000,000.00 $12,000,000.00 Sales $2,000,000.00 ROI 15% Variable expenses $6,000,000.00 $7,200,000.00 Variable expenses 60% of sales Invest in operating $1,000,000.00 Contribution margin $4,000,000.00 $4,800,000.00 Fixed expenses $640,000.00 Fixed expenses $3,200,000.00 $ 640,000.00 $3,840,000.00 Net Operating Income Net operating income $800,000.00 $960,000.00 Divisional operating assets $4,000,000.00 $ 1,000,000.00 $5,000,000.00 Margin (NOI/Sales) Turnover (Sales/Operating Assets) ROI (margin * Turnover) #2 If you were in Dell Havasi’s position, would you accept or reject the new product line? Explain. #3 Why do you suppose headquarters is anxious for the Office Products Division to add the new product line?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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#1 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:

	This Year	New Line	Next Year	New product line Info			Company Oveall Info:
Sales	$10,000,000.00	$ 2,000,000.00	$12,000,000.00	Sales	$2,000,000.00		ROI	15%
Variable expenses	$6,000,000.00		$7,200,000.00	Variable expenses	60%	of sales	Invest in operating	$1,000,000.00
Contribution margin	$4,000,000.00		$4,800,000.00	Fixed expenses	$640,000.00
Fixed expenses	$3,200,000.00	$ 640,000.00	$3,840,000.00	Net Operating Income
Net operating income	$800,000.00		$960,000.00
Divisional operating assets	$4,000,000.00	$ 1,000,000.00	$5,000,000.00
Margin (NOI/Sales)
Turnover (Sales/Operating Assets)
ROI (margin * Turnover)

#2 If you were in Dell Havasi’s position, would you accept or reject the new product line? Explain.


#3 Why do you suppose headquarters is anxious for the Office Products Division to add the new product line?

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