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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$ $22,835,000$Variable expenses$14,297,200$Contribution margin$8,537,800$Fixed expenses$6,190,000$Net operating income$ $2,347,800$Divisional average operating assets$ $4,000,000$

The company had an overall return on investment $($ROI$)$ of $17\mathrm{.}00\%$ this year $($considering all divisions$).$ Next year the Office Products Division has an opportunity to add a new product requiring $$2,755,000$ of additional average operating assets. The annual cost and revenue estimates for the new product would be:

Sales$ $9,915,000$Variable expenses$65\%$of salesFixed expenses$ $2,607,450$

Required:

Compute the Office Products Division$$s ROI for this year.

Compute the Office Products Division$$s ROI for the new product by itself.

Compute the Office Products Division$$s ROI for next year assuming it performs the same as this year and adds the new product line.

If you were in Dell Havasi$$s position, would you accept or reject the new product?

Why do you suppose headquarters is anxious for the Office Products Division to add the new product?

Suppose the company$$s minimum required rate of return on operating assets is $14\%$ and performance is evaluated using residual income.

Compute the Office Products Division$$s residual income for this year.Compute the Office Products Division$$s residual income for the new product by itself.Compute the Office Products Division$$s residual income for next year assuming it performs the same as this year and adds the new product.Using the residual income approach, if you were in Dell Havasi$$s position, would you accept or reject the new product?