I know headquarters wants us to add that new product line, said Dell Havasi, manager of...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image](https://dsd5zvtm8ll6.cloudfront.net/questions/2024/05/663b2d90a16d2_320663b2d9096869.jpg)
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 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 $ 21,902,000 13,788,600 8,113,400 6,055,000 $ 2,058,400 Divisional average operating assets $ 4,562,500 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 $2,250,500 of additional average operating assets. The annual cost and revenue estimates for the new product would be: Sales $ 9,450,000 Variable expenses Fixed expenses 65 % of sales $ 2,570,200 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 14% 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. c. Compute the Office Products Division's residual income for next year assuming it performs the same as this year and adds the new product. d. Using the residual income approach, if you were in Dell Havasi's position, would you accept or reject the new product? "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 $ 21,902,000 13,788,600 8,113,400 6,055,000 $ 2,058,400 Divisional average operating assets $ 4,562,500 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 $2,250,500 of additional average operating assets. The annual cost and revenue estimates for the new product would be: Sales $ 9,450,000 Variable expenses Fixed expenses 65 % of sales $ 2,570,200 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 14% 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. c. Compute the Office Products Division's residual income for next year assuming it performs the same as this year and adds the new product. d. Using the residual income approach, if you were in Dell Havasi's position, would you accept or reject the new product?
Expert Answer:
Related Book For
Managerial Accounting
ISBN: 9781260247787
17th Edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer
Posted Date:
Students also viewed these accounting questions
-
I know headquarters wants us to add that new product line, said Dell Havasi, manager of Billings Companys Office Products Division. But I want to see the numbers before I make any move. Our divisions...
-
Discuss third-party logistics (3PL) providers and why companies use them. List 2 reasons for and 2 reasons against using (3PL) services
-
1. If you have samples of n1=23 and n2=17, in performing the pooled-variance t test, how many degrees of freedom do you have? You have____ degrees of freedom? 2. Assume that you have a sample of...
-
4 pts A lottery winner will receive $0.5 mulhon at the end of each of the next se yearn. What is the future value of her winnings at the time of her final payment, given that the interest rate is 6%...
-
What is the difference between the first load and a refresh load?
-
For each compound, give the product(s) expected from (1) hydration HgSO4 / H2SO4 and (2) hydroboration-oxidation. (a) hex-1-yne (b) hex-2-yne (c) hex-3-yne (d) cyclodecyne
-
What is the aim of information processors in an accounting system?
-
The Barb Company has provided information on intangible assets as follows: 1. A patent was purchased from the Lou Company for $1,500,000 on January 1, 2006. Barb estimated the remaining useful life...
-
One study claimed that 88% of college students identify themselves as procrastinators. A professor believes that the claim regarding college students is too high. The professor conducts a simple...
-
Legal regulations that affect how organizations can compensate employees and provide benefits consider all of these regulations and develop an infographic. the infographic will depict the laws and...
-
Incident reports include statements from employees and physicians regarding significant or noteworthy deviation from acceptable patient care. Some states require the reporting of specific incidents.
-
Unemployment compensation can be denied, for example, in cases of profanity, threatening coworkers, theft, poor work attendance, voluntary termination, and violation of no-smoking policies.
-
The National Practitioner Data Bank (NPDB) is used to collect and release information on the professional competence and conduct of physicians, dentists, and other healthcare practitioners....
-
Title VII of the Civil Rights Act of 1964, as amended by the Equal Employment Opportunity Act of 1972, prohibits discrimination in employment based on race, color, religion, sex, or national origin.
-
In 1974, an amendment designating procedures that limit strikes in healthcare organizations was added to the NLRA. The amendment requires a 10-day strike notice; allows the NLRB to determine the...
-
Assertion - Freud theorised that personality develops in childhood through a series of psychosexual stages BECAUSE Reason - He personally observed children fixating on different erogenous zones...
-
Reichenbach Co., organized in 2018, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2018 and 2019. Instructions...
-
The following extract is from Conceptual Framework for Financial Accounting and Reporting: Elements of Financial Statements and Their Measurement, FASB 3, December 1976. The benefits of achieving...
-
The following extract is from Comments of Leonard Spacek, in R.T. Sprouse and M. Moonitz, A Tentative Set of Broad Accounting Principles for Business Enterprises, Accounting Research Study No. 3,...
-
What factors should be considered in selecting an allocation base?
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App