"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."Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, withyear-end bonuses given to the divisional managers who have the highest ROIS. Operating results for the company's Office ProductsDivision for this year are given below:SalesVariable expensesContribution marginFixed expensesNet operating incomeDivisional average operating assets$ 21,100,00013,350,4007,749,6005,935,000$ 1,814,600$ 4,220,000The company had an overall return on investment (ROI) of 18.00% this year (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 $2,262,500. The cost and revenue characteristics of the new product line per year would be:$ 9,050,000$ 2,534,000SalesVariable expensesFixed expenses65% of sales Req 1 to 3Req 4Req 5Req 6A to 6C6. Suppose that the company's minimum required rate of return on operating assets is 16% and that performance isevaluated 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 aradds the new product line.1. Residual income for this year2. Residual income for the new product line by itself3. Residual income for next yearReq 6D< Req 520< PrevReq 6D >3 of 3Pditv28Next >DIIFBAQF9Show less AFIC

The calculation of residual income is as follows: Residual income = operating income - (minimum…

6. Suppose that the company's minimum required rate of return on operating assets is 16% 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 adds the new product line.

6. Suppose that the company's minimum required rate of return on operating assets is 16% 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 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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“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.” 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 ROIs. Operating results for the company’s Office Products Division for this year are given below: Sales $ 22,900,000 Variable expenses 14,313,400 Contribution margin 8,586,600 Fixed expenses 6,205,000 Net operating income $ 2,381,600 Divisional average operating assets $ 4,580,000 The company had an overall return on investment (ROI) of 17.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that…
"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." 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 this year are given below: $ 22,300,000 13,999,600 8,300,400 6,115,000 $ 2,185,400 Sales Variable expenses Contribution margin Fixed expenses Net operating income Divisional average operating assets 5,575,000 The company had an overall return on investment (ROI) of 17.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an…
“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.” 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 ROIs. Operating results for the company’s Office Products Division for this year are given below: Sales $ 22,505,000 Variable expenses 14,105,500 Contribution margin 8,399,500 Fixed expenses 6,145,000 Net operating income $ 2,254,500 Divisional average operating assets $ 4,687,500 The company had an overall return on investment (ROI) of 17.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that…
“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.” 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 ROIs. Operating results for the company’s Office Products Division for this year are given below: Sales $ 22,900,000 Variable expenses 14,313,400 Contribution margin 8,586,600 Fixed expenses 6,205,000 Net operating income $ 2,381,600 Divisional average operating assets $ 4,580,000 The company had an overall return on investment (ROI) of 17.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that…
"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." 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 ROIS. Operating results for the company's Office Products Division for this year are given below: Sales Variable expenses Contribution margin Fixed expenses Net operating income Divisional average operating assets Sales Variable expenses Fixed expenses The company had an overall return on investment (ROI) of 18.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would…
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.” 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 ROIs. Operating results for the company’s Office Products Division for this year are given below: Sales $ 23,000,000 Variable expenses 14,365,000 Contribution margin 8,635,000 Fixed expenses 6,220,000 Net operating income $ 2,415,000 Divisional average operating assets $ 5,001,000 The company had an overall return on investment (ROI) of 16.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new…
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“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 a decision. 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 wholesaler with five autonomous divisions. The divisions are evaluated using ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the company’s Office Products Division for this year are given below: Sales $ 22,440,000 Variable expenses 14,094,600 Contribution margin 8,345,400 Fixed expenses 6,130,000 Net operating income $ 2,215,400 Divisional average operating assets $ 4,480,000 The company had an overall return on investment (ROI) of 18.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product requiring $2,430,600 of…
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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 a decision. 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 wholesaler with five autonomous divisions. The divisions are evaluated using ROL with year-end bonuses given to the divisional managers who have the highest ROIS. Operating results for the company's Office Products Division for this year are given below: Sales Variable expenses Contribution margin Fixed expenses Net operating income Divisional average operating assets The company had an overall return on investment (ROI) of 17.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product requiring $2,755,000 of additional average operating assets. The annual cost and revenue estimates for the new…
Faced with headquarters' desire to add a new product line, Stefan Grenier, manager of Bilti Products' East Division, felt that he had to see the numbers before he made a move. His division's ROI has led the company for three years, and he doesn't want any letdown. Bilti Products is a decentralized wholesaler with four autonomous divisions. The divisions are evaluated on the basis of ROI, with year- end bonuses given to divisional managers who have the highest ROI. Operating results for the company's East Division for last year are given below: Sales Variable expenses Contribution margin Fixed expenses Operating income Divisional operating assets The company had an overall ROI of 16% last year (considering all divisions). The new product line that headquarters wants Grenier's East Division to add would require an investment of $3,800,000. The cost and revenue characteristics of the new product line per year would be as follows: Sales Variable expenses Fixed expenses $ 11,400,000 $…