Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated using ROI,...

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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 Variable expenses Contribution margin Fixed expenses Net operating income Divisional average operating assets $ 22,100,000 13,893,400 8,206,600 6,085,000 $ 2,121,600 $ 5,200,000 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 product requiring $2,387,500 of additional average operating assets. The annual cost and revenue estimates for the new product would be: Sales Variable expenses Fixed expenses $ 9,550,000 65 % of sales $ 2,578,500 Required: 1. Compute the Office Products Division's margin, turnover, and ROI for this year. 2. Compute the Office Products Division's margin, turnover, and ROI for the new product by itself. 3. Compute the Office Products Division's margin, turnover, and ROI for next year assuming it performs the same as this year and adds the new product. 4. If you were in Dell Havasi's position, would you accept or reject the new product? 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product? 6. Suppose the company's minimum required rate of return on operating assets is 12% and 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 by itself. 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 Variable expenses Contribution margin Fixed expenses Net operating income Divisional average operating assets $ 22,100,000 13,893,400 8,206,600 6,085,000 $ 2,121,600 $ 5,200,000 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 product requiring $2,387,500 of additional average operating assets. The annual cost and revenue estimates for the new product would be: Sales Variable expenses Fixed expenses $ 9,550,000 65 % of sales $ 2,578,500 Required: 1. Compute the Office Products Division's margin, turnover, and ROI for this year. 2. Compute the Office Products Division's margin, turnover, and ROI for the new product by itself. 3. Compute the Office Products Division's margin, turnover, and ROI for next year assuming it performs the same as this year and adds the new product. 4. If you were in Dell Havasi's position, would you accept or reject the new product? 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product? 6. Suppose the company's minimum required rate of return on operating assets is 12% and 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 by itself.

Answer rating: 100% (QA)

1 Compute the Office Products Divisions margin turnover and ROI for this year Margin Net Operating Income Sales 2121600 22100000 0096 or 96 Turnover Sales Average Operating Assets 22100000 5200000 425 ... View the full answer