Saved I know headquarters wants us to add that new product line, said Dell Havasi, manager...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Saved "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 $ 22,900,000 14,313,400 8,586,600 6,205,000 $ 2,381,600 Divisional average operating assets $ 4,580,000 The company had an overall return on investment (ROI) of 17.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product requiring $2,484,500 of additional average operating assets. The annual cost and revenue estimates for the new product would be: Sales $ 9,942,400 Variable expenses Fixed expenses 65% of sales $ 2,602,240 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 13% 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? Complete this question by entering your answers in the tabs below. Required 1 to 3 Required 4 Required 5 Required 6A to 6C Required 6D 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. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Show less A Marain Turnovar ROL Saved "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 $ 22,900,000 14,313,400 8,586,600 6,205,000 $ 2,381,600 Divisional average operating assets $ 4,580,000 The company had an overall return on investment (ROI) of 17.00% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product requiring $2,484,500 of additional average operating assets. The annual cost and revenue estimates for the new product would be: Sales $ 9,942,400 Variable expenses Fixed expenses 65% of sales $ 2,602,240 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 13% 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? Complete this question by entering your answers in the tabs below. Required 1 to 3 Required 4 Required 5 Required 6A to 6C Required 6D 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. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Show less A Marain Turnovar ROL
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...
-
I know headquarters wants us to add that new product line, said Fred Halloway, manager of Kirsi Products East Division. But I want to see the numbers before I make a move. Our divisions return on...
-
Your friend says that the law of momentum conservation is violated when a ball rolls down a hill and gains momentum. What do you say?
-
Suppose the first trial has probability of success 0.5, and the second is successful with probability 0.8 if the first is and succeeds with probability 0.2 if the first fails. Show that the second...
-
Provide 5 examples of legislation and standards that affect bookkeeping/accounting activities.
-
Consider the simple regression model fit to the National Football League team performance data in Problem 2.1. Data From Problem 2.1 Table B. 1 gives data concerning the performance of the 26...
-
On January 1, 2014, the Vasquez Company ledger shows Equipment $32,000 and Accumulated Depreciation-Equipment $9,000. The depreciation resulted from using the straight-line method with a useful life...
-
Monty Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $109,000. (a) Prepare the journal entry for the issuance when the market...
-
You have been given the following information for Azure Inc.: Common Stock:10million shares outstanding, $15per share market price, Beta = 1.25 PreferredStock:2 million shares outstanding, $8per...
-
Consider a square loop of wire that carries a clockwise current when viewed from above. What is the direction of the magnetic field at the center of the square loop due to \((a)\) the left side,...
-
If you drop a magnet through a length \(\ell\) of copper pipe, the time interval needed for the magnet to travel through the pipe (even if the magnet never touches the sides of the pipe) is much...
-
The annual returns on stocks 1 and 2 for three possible states of the economy are given in Table 5.42. a. Find and interpret the correlation between stocks | and 2. b. Consider another stock (stock...
-
Two parallel wires each carry a current \(I\) in the positive \(x\) direction. What is the direction of the magnetic field at any point that lies midway between the wires and in the plane defined by...
-
Table 18.3 gives some distances and commute times for a typical daily commute. Find the average speed (to the nearest mph) for the time intervals requested in Problems 1-4. Table 18. 3 \(6: 09\) to...
-
Read the following discussion and give your response: In the Chinese culture the family, or Jia, is of the most important institutions within the culture. Although this is not unique to the culture,...
-
The Place-Plus real estate development firm in Problem 24 is dissatisfied with the economists estimate of the probabilities of future interest rate movement, so it is considering having a financial...
-
The amplitude of a surface wave for which \(\lambda=0.050 \mathrm{~m}\) is \(5.0 \mathrm{~mm}\) at a distance of \(1.0 \mathrm{~m}\) from a point source. What is the amplitude of the wave (a) 10 m...
-
For the situation shown in Figure 17.16a, how many nodes are there along the line segment \(S_{1} S_{2}\) that connects the centers of the two sources? Data from Figure 17.16a (a) Both sources...
-
Given that the speed of sound waves in dry air is \(343 \mathrm{~m} / \mathrm{s}\), determine the wavelengths at the lower and upper ends of the audible frequency range \((20 \mathrm{~Hz}-20...
Study smarter with the SolutionInn App