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 $2,326,200. The cost and revenue characteristics of the new product line per year would be:
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 $2,326,200. The cost and revenue characteristics of the new product line per year would be:
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter10: Evaluating Decentralized Operations
Section: Chapter Questions
Problem 4TIF: The three divisions of Yummy Foods are Snack Goods, Cereal, and Frozen Foods. The divisions are...
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See questions 6A-6C in image
Question 6D: Using the residual income approach, if you were in Dell Havasi’s position, would you accept or reject the new product line?
!["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 $2,326,200. The cost and
revenue characteristics of the new product line per year would be:
Sales
Variable expenses
Fixed expenses
$ 21,600,000
13,622,600
7,977,400
6,010,000
$ 1,967,400
$ 4,499,200
$9,300,000
65% of sales
$ 2,557,400](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa1fb77d1-c752-4653-8f65-d5ebd4ec27ec%2F3a3bf771-655c-48cc-9c50-b1c7749f229c%2Fww9gj6w_processed.png&w=3840&q=75)
Transcribed Image Text:"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 $2,326,200. The cost and
revenue characteristics of the new product line per year would be:
Sales
Variable expenses
Fixed expenses
$ 21,600,000
13,622,600
7,977,400
6,010,000
$ 1,967,400
$ 4,499,200
$9,300,000
65% of sales
$ 2,557,400
![Complete this question by entering your answers in the tabs below.
Req 1 to 3
Req 4
Req 5
Req 6A to 6C
Req 6D
6. Suppose that the company's minimum required rate of return on operating assets 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
c. Compute the Office Products Division's residual income for next year assuming that
adds the new product line.
1. Residual income for this year
2. Residual income for the new product line by itself
3. Residual income for next year](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa1fb77d1-c752-4653-8f65-d5ebd4ec27ec%2F3a3bf771-655c-48cc-9c50-b1c7749f229c%2Fd1hd72u_processed.png&w=3840&q=75)
Transcribed Image Text:Complete this question by entering your answers in the tabs below.
Req 1 to 3
Req 4
Req 5
Req 6A to 6C
Req 6D
6. Suppose that the company's minimum required rate of return on operating assets 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
c. Compute the Office Products Division's residual income for next year assuming that
adds the new product line.
1. Residual income for this year
2. Residual income for the new product line by itself
3. Residual income for next year
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