requirements 1-5, 6A-6D **Case Study: Evaluating New Product Line for Billings Company**Billings Company, a decentralized wholesaler with five autonomous divisions, evaluates divisions based on return on investment (ROI). Year-end bonuses are given to managers with the highest ROIs. Here, we examine the Office Products Division's performance and a potential new product line.### Current Performance of Office Products Division- **Sales:** $22,300,000- **Variable Expenses:** $13,399,600- **Contribution Margin:** $8,900,400- **Fixed Expenses:** $6,715,000- **Net Operating Income:** $2,185,400- **Divisional Average Operating Assets:** $5,575,000### Potential New Product LineThe office products division considers a new product line with the following attributes:- **Sales:** $9,650,000- **Variable Expenses:** 65% of sales- **Fixed Expenses:** $2,583,600- **Additional Investment in Average Operating Assets:** $3,857,400### Company's Overall ROIThe company recorded an overall ROI of 17.00% last year.### Required Analysis1. Calculate the current year's ROI for the Office Products Division.2. Determine the ROI for the new product line alone.3. Estimate next year's ROI assuming the division performs the same and introduces the new product line.4. Decision Analysis: Would accepting the new product line be beneficial?5. Consider why headquarters is keen on adding the new product line.6. If the minimum required rate of return is 14%, evaluate: - The division's residual income for this year. - Residual income for the new product line alone. - Residual income assuming same performance with the new product line. - Make an acceptance decision using the residual income approach.This case prompts a thorough assessment of extending current operations versus maintaining existing performance levels. Key financial metrics such as ROI and residual income guide strategic decision-making in decentralized entities.

Hi studentSince there are multiple subparts asked, we will answer only first three…

"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 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 additional investment that would increase average operating assets by $3,857,400. The cost and revenue characteristics of the new product line per year would be: Sales Variable expenses Fixed expenses $ 22,300,000 13,999,600 8,300,400 6,115,000 $ 2,185,400 $ 5,575,000 $ 9,650,000 $ 2,583,600 65% of sales Required: 1. Compute the Office Products Division's ROI for this year. 2. Compute the Office Products Division's ROI for the new product line by itself. 3. Compute the Office Products Division's ROI for next year assuming that it performs the same as this year and adds the new product line. 4. If you were in Dell Havasi's position, would you accept or reject the new product line? 5. Why do you suppose headquarters 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 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. d. Using the residual income approach, if you were in Dell Havasi's position, would you accept or reject the new product line?