Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of 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 the most recent year are given below:
|
|
| Sales |
$24,000,000 |
| Variable expenses |
15,416,000
|
| Contribution margin |
8,584,000 |
| Fixed expenses |
6,784,000
|
| Net operating income |
$1,800,000
|
| Divisional operating assets |
$6,000,000
|
|
|
The company had an overall return on investment (ROI) of 15% last year (considering all divisions). The Office Products Division has an opportunity to add a new product line that would require an additional investment in operating assets of $2,650,000. The cost and revenue characteristics of the new product line per year would be:
|
|
|
| Sales |
$7,685,000 |
| Variable expenses |
60% of sales |
| Fixed expenses |
$2,551,420 |
|
| Requirement 1: |
|
Compute the Office Products Division's ROI for the most recent year; also compute the ROI as it would appear if the new product line is added.(Round interim calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)
|
|
ROI |
| Present |
% |
| New Line |
% |
| Total for company |
% |