actoring Enabled HAS B 4 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: 42:02 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 ROI Present Required: 1. Compute the East Division's ROI for last year, also compute the ROI as it would appear if the new product line were added. (Do not round intermediate calculations. Round your final answer to the nearest whole number.) $11,400,000 $ 3,306,000 New Line O Accept O Reject 65% of sales $26,600,000 14,120,000 12,480,000 10,086,000 $ 2,394,000 $ 6,650,000 Total 2. If you were in Grenier's position, would you accept or reject the new product line?
actoring Enabled HAS B 4 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: 42:02 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 ROI Present Required: 1. Compute the East Division's ROI for last year, also compute the ROI as it would appear if the new product line were added. (Do not round intermediate calculations. Round your final answer to the nearest whole number.) $11,400,000 $ 3,306,000 New Line O Accept O Reject 65% of sales $26,600,000 14,120,000 12,480,000 10,086,000 $ 2,394,000 $ 6,650,000 Total 2. If you were in Grenier's position, would you accept or reject the new product line?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:octoring Enabled: Final Exa
14
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:
ROI
Sales
Variable expenses
Fixed expenses
Present
Required:
1. Compute the East Division's ROI for last year, also compute the ROI as it would appear if the new product line were added. (Do not
round intermediate calculations, Round your final answer to the nearest whole number.)
$11,400,000
$ 3,306,000
New Line
O Accept
O Reject
65% of sales
$26,600,000
14,120,000
12,480,000
10,086,000
$ 2,394,000
$ 6,650,000
Total
2. If you were in Grenier's position, would you accept or reject the new product line?
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Transcribed Image Text:2. If you were in Grenier's position, would you accept or reject the new product line?
O Accept
O Reject
3. Why do you suppose headquarters is anxious for the East Division to add the new product line?
O Adding the new line would decrease the company's overall ROI.
O Adding the new line would increase the company's overall ROL
4. Suppose that the company's minimum required rate of return on operating assets is 13% and that performance
residual income.
a. Compute East Division's residual income for last year; also compute the residual income as it would appear if the
were added.
Residual income
Present
O Accept
O Reject
New Line
Total
b. Under these circumstances, if you were in Grenier's position, would you accept or reject the new product line?
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A
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