I know headquarters wants us to add that new product line, said Dell Havasi, manager of...
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"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 a decision. 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 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 $ 21,100,000 13,350,400 7,749,600 5,935,000 $ 1,814,600 $ 4,220,000 The company had an overall return on investment (ROI) of 18.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product requiring $2,262,500 of additional average operating assets. The annual cost and revenue estimates for the new product would be: Sales Variable expenses Fixed expenses $ 9,050,000 65 % of sales $ 2,534,000 "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 a decision. 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 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 $ 21,100,000 13,350,400 7,749,600 5,935,000 $ 1,814,600 $ 4,220,000 The company had an overall return on investment (ROI) of 18.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product requiring $2,262,500 of additional average operating assets. The annual cost and revenue estimates for the new product would be: Sales Variable expenses Fixed expenses $ 9,050,000 65 % of sales $ 2,534,000
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