Fergie Inc. had an overall return on investment (ROI) of 13% last year, including all divisions....

 

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Fergie Inc. had an overall return on investment (ROI) of 13% last year, including all divisions. The North Division had a ROI of 15% last year. The North Division has the opportunity to add a new product line that would require an investment of $250,000. The following results are expected: Total $ 650,000 312,000 338,000 303,000 $35,000 Per Unit $ 50 24 26 Sales Variable expenses Contribution margin Fixed expenses Operating income Required: 1. Calculate the ROI for the new product line using margin and turnover. (2 marks) 2. Given your calculations above: a. Will the manager of the North Division accept or reject the new opportunity? Why? (1 mark) b. Will the company headquarters want the North Division to accept or reject the new opportunity? Why? (1 mark) 3. Calculate the residual income (RI) for the new product line. Assume the company evaluates performance using 12% as the minimum rate of return for any division. (2 marks) Fergie Inc. had an overall return on investment (ROI) of 13% last year, including all divisions. The North Division had a ROI of 15% last year. The North Division has the opportunity to add a new product line that would require an investment of $250,000. The following results are expected: Total $ 650,000 312,000 338,000 303,000 $35,000 Per Unit $ 50 24 26 Sales Variable expenses Contribution margin Fixed expenses Operating income Required: 1. Calculate the ROI for the new product line using margin and turnover. (2 marks) 2. Given your calculations above: a. Will the manager of the North Division accept or reject the new opportunity? Why? (1 mark) b. Will the company headquarters want the North Division to accept or reject the new opportunity? Why? (1 mark) 3. Calculate the residual income (RI) for the new product line. Assume the company evaluates performance using 12% as the minimum rate of return for any division. (2 marks)

Answer rating: 100% (QA)

2a The North Division will reject the new opportunity ... View the full answer