Question 1 has to be utilized in solving question 2.

Please show formulas used. Thank you!

Chapter 11 Cases 1.) "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 any move. 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 based on ROI, with year-end bonuses given to the divisional managers who have the highest ROls. Operating results for the company's Office Products Division for this year are given below: Sales $22,045,000 Variable expenses 13,882,000 Contribution margin 8,163,000 Fixed expenses 6,070,000 Net operating income $2,093,000 Divisional average operating assets$5,500,000 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 line that would require an additional investment that would increase average operating assets by $2,501,500. The cost and revenue characteristics of the new product line per year would be: Sales $9,500,000 Variable expenses65% of sales Fixed expenses $2,574,100 Required: 1. Compute the Office Products Division's margin, turnover, and Rol for this year. 2. Compute the Office Products Division's margin, turnover, and ROI for the new product line by itself. 3. Compute the Office Products Division's margin, turnover, and ROI for next year assuming that it performs the same as this year and adds the new product line. 4. If you were in Dell Havasi's position, would you accept or reject the new product line? 5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line? 6. Suppose that the company's minimum required rate of return on operating assets is 13% and that 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 line by itself. c. Compute the Office Products Division's residual income for next year assuming that it performs the same as this year and adds the new product line. d. Using the residual income approach, if you were in Dell Havasi's position, would you accept or reject the new product line? Chapter 11 Cases 2) Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division's return on investment (ROI). Assume the following information relative to the two divisions: Case 2 3 Alpha Division: Capacity in units 50,000 320,000 101,000 Number of units now being sold to outside customers 50,000 320,000 77,000 Selling price per unit to outside customers $98 $43 Variable costs per unit $59 $20 $41 Fixed costs per unit (based on capacity) $23 $12 Beta Division: Number of units needed annually 9,100 69,000 18,000 Purchase price now being paid to an outside supplier $92 $42 $67 $67 $25 Required: 1. Refer to case 1 shown above. Alpha Division can avoid $3 per unit in commissions on any sales to Beta Division a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer? 2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta Division. a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be? d. Assume Alpha Division offers to sell 69,000 units to Beta Division for $41 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole? 3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 5% price discount from the outside supplier. a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer? d. Assume Beta Division offers to purchase 18,000 units from Alpha Division at $58.65 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged