Sales

Variable expenses

Contribution margin

Fixed expenses

Net operating income

Divisional average operating assets

The company had an overall return on Investment $($ROI$)$ of $16\mathrm{.}00\%$ this year $($considering all divislons$).$ 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 characterlstics of the new product IIne per year would be:

Sales

$$9,50,$

Variable expenses

$65\%$ of sales

Fixed expenses

$$2,574,10$

Requlred:

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

Compute the Office Products Division's ROI for the new product IIne by Itself.

Compute the Office Products Division's ROI for next year assuming that It performs the same as this year and adds the new product

Ine.

If you were In Dell Havasi's position, would you accept or reject the new product IIne?

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

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 IIne?