"I know headquarters wents us to add that new product line," said Dell Havesi, manoger 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 wholessler with five sutonomous divisions. The divisions are evalusted on the basis of ROI, withyear-end bonuses given to the divisional managers who hove the highest ROls. Operating results for the company's Office ProductsDivision for this year are given below:SalesVariable expensesContribution marginFixed expenses$ 22,835, 80e14,297, 2008,537, 80e6,198, e002,347, 800Net operating incomeDivisional average operating assets4, e0e, eeeThe company had an overall return on investment (ROI) of 17.00% this yeer (considering all divisions). Next year the Office ProductsDivision has an opportunity to add a new product line that would require an additional investment that would increase averageoperating assets by $2,755,000. The cost and revenue charecteristics of the new product line per year would be:Sales$9,915,88865% of salesVariable expensesFixed expenses$2, 687,450Required:1. Compute the Office Products Division's margin, turnover, and ROI for this yeor.2. Compute the Office Products Division's margin, turnover, and ROl for the new product line by itself.3. Compute the Office Products Division's margin, turnover, end ROl for next year assuming that it performs the same os this year andadds the new product line.4. If you were in Dell Havesi's position, would you accept or reject the new product line?5. Why do you suppose hesdquarters is anxious for the Office Products Division to add the new product line?6. Suppose that the company's minimum required rate of return on operating assets is 14% and that performance is evaluated usingresidual income.a. Compute the Office Products Division's residual income for this year.b. Compute the Office Products Division's residual income for the new product line by itself.c. Compute the Office Products Division's residual income for next year essuming that it performs the same as this year and adds thenew product line.d. Using the residual income approsch, if you were in Dell Havasi's position, would you accept or reject the new product line?Complete this question by entering your answers in the tabs below.Req 1 to 3Req 4Reg 5Reg 6A to 60Req 6D6. Suppose that the company's minimum required rate of return on operating assets is 14% and that performance isevaluated using residual income.a. Compute the Office Products Division's residual income for this year.b. Compute the orfice Products Division's residual income for the new product line by itself.c. Compute the orrice Products Division's residual income for next year assuming that it performs the same as this year andadds the new product line.Show less a1. Residual income for this year2. Residual income for the new product line by itself3.Residual income for next year< Req 5Req GD >

Name: "I know headquarters wents us to add that new product line," said Del
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Description: "I know headquarters wents us to add that new product line," said Dell Havesi, manoger 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 compan

Residual Income = Net Income - ( Minimum Required Rate of Return x Total Capital Employed on…

Business

Accounting

6. Suppose that the company's minimum required rate of return on operating assets is 14% and that performance is evaluated using residual income. a. Compute the Office Products Division's residual income for this year. b. Compute the Office Products Division's residual income for the new product line by itself. c. Compute the Office Products Division's residual income for next year assuming that it performs the same as this year and adds the new product line.

6. Suppose that the company's minimum required rate of return on operating assets is 14% and that performance is evaluated using residual income. a. Compute the Office Products Division's residual income for this year. b. Compute the Office Products Division's residual income for the new product line by itself. c. Compute the Office Products Division's residual income for next year assuming that it performs the same as this year and adds the new product line.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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H1.
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N5.