Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis
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Sales....................................................... $24,000,000
Variable expenses........................................ 15,416,000
Contribution margin....................................... 8,584,000
Fixed expenses.............................................. 6,784,000
Net operating income.................................... $1,800,000
Divisional operating assets.............................. $6,000,000
The company had an overall return on investment (ROI) of 15% last year (considering all divisions). The Office Products Division has an opportunity to add a new product line that would require an additional investment in operating assets of $2,650,000. The cost and revenue characteristics of the new product line per year would be:
Sales.............................. $7,685,000
Variable expenses................60% of sales
Fixed expenses...................$2,551,420
Requirement
Compute the Office Products Division's ROI for the most recent year; also compute the ROI as it would appear if the new product line is added.(Round interim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)
ROI
Present.............................. %
New Line........................... %
Total for company................. %
Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
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Related Book For
Managerial Accounting
ISBN: 9781260247787
17th Edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer
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