Question

Need help please.

Problem 9-18A Return on Investment (ROI) and Residual Income[LO9-1, LO9-2]

“I know headquarters wants us to add that new product line,”said Dell Havasi, manager of Billings Company’s Office ProductsDivision. “But I want to see the numbers before I make any move.Our division’s return on investment (ROI) has led the company forthree years, and I don’t want any letdown.”

Billings Company is adecentralized wholesaler with five autonomous divisions. Thedivisions are evaluated on the basis of ROI, with year-end bonusesgiven to the divisional managers who have the highest ROIs.Operating results for the company’s Office Products Division forthe most recent year are given below:

Sales	$	22,900,000
Variableexpenses		14,313,400
Contributionmargin		8,586,600
Fixed expenses		6,205,000
Net operatingincome	$	2,381,600
Divisional operatingassets	$	4,580,000

The company had an overall returnon investment (ROI) of 17.00% last year (considering alldivisions). The Office Products Division has an opportunity to adda new product line that would require an additional investment inoperating assets of $2,484,500. The cost and revenuecharacteristics of the new product line per year would be:

Sales	$9,942,400
Variableexpenses	65% ofsales
Fixed expenses	$2,602,240

Required:

1.

Compute the Office Products Division’s ROI for the most recentyear; also compute the ROI as it would appear if the new productline is added. (Do not round intermediate calculations.Round your Turnover answers to 2 decimal places. Round your Marginand ROI percentage answers to 2 decimal places (i.e., 0.1234 shouldbe entered as 12.34).)

	Present		New Line		Total
Sales
Net operating income
Operating assets
Margin		%		%		%
Turnover
ROI		%		%		%

Reject