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Compute office products division roi for new product line

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Reference no: EM132527698

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 this year are given below:

Sales $21,200,000

Variable expenses 13,405,600

Contribution margin 7,794,400

Fixed expenses 5,950,000

Net operating income $1,844,400

Divisional average operating assets $ 4,240,000

The company had an overall return on investment (ROI) of 19.00% 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 $2,600,000.

The cost and revenue characteristics of the new product line per year would be:

Sales $9,100,000

Variable expenses 65% of sales

Fixed expenses $2,538,900

Required:

Question 1: Compute the Office Products Division's ROI for the new product line by itself.

Reference no: EM132527698

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