1 know headquarters wants us to add that new product line," said Dell Havesi, 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 (RO) 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 evalusted on the basis of 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 Variable expenses Contribution margin Fixed expenses $ 21,400,000 13,515,400 7,884,600 5,950,000 31,904, C00 $ 5,350, 000 Net operating income Divisional average operating assets 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 $2.875.000. The cost and revenue characteristics of the new product line per year would be: Sales Variable expenses Fixed expenses $9,200,000 6SK of sales $2,548,400 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 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.
1 know headquarters wants us to add that new product line," said Dell Havesi, 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 (RO) 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 evalusted on the basis of 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 Variable expenses Contribution margin Fixed expenses $ 21,400,000 13,515,400 7,884,600 5,950,000 31,904, C00 $ 5,350, 000 Net operating income Divisional average operating assets 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 $2.875.000. The cost and revenue characteristics of the new product line per year would be: Sales Variable expenses Fixed expenses $9,200,000 6SK of sales $2,548,400 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 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.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter18: Pricing And Profitability Analysis
Section: Chapter Questions
Problem 36P: Dantrell Palmer has just been appointed manager of Kirchner Glass Products Division. He has two...
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