Scribd
Upload
65 views

Assignment - 3 - Performance Management

The manager of Billings Company's Office Products Division wants to see the numbers before adding a new product line, as the division has led the company in return on investment for three years. The document provides financial information for the Office Products Division for the current year, as well as the costs and revenues associated with potential new product line. It asks the reader to calculate the division's return on investment and residual income for the current year, potential new product line, and projected next year including the new product line, and determine whether the product line should be accepted or rejected based on the calculations.

Uploaded by

Arslan Qadir
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
65 views

Assignment - 3 - Performance Management

The manager of Billings Company's Office Products Division wants to see the numbers before adding a new product line, as the division has led the company in return on investment for three years. The document provides financial information for the Office Products Division for the current year, as well as the costs and revenues associated with potential new product line. It asks the reader to calculate the division's return on investment and residual income for the current year, potential new product line, and projected next year including the new product line, and determine whether the product line should be accepted or rejected based on the calculations.

Uploaded by

Arslan Qadir
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 1

Assignment-3 Performance Measurement & Decentralization Spring-2023

“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 any move. 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 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:

The company had an overall return on investment (ROI) of 15% 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 $1,000,000. The cost and
revenue characteristics of the new product line per year would be:

Required:
1. Compute the Office Products Division’s ROI for this year.
2. Compute the Office Products Division’s ROI for the new product line by itself.
3. Compute the Office Products Division’s ROI for next year assuming that it performs the same as
this year and adds the new product line.
4. If you were in Dell Havasi’s position, would you accept or reject the new product line? Explain.
5. Suppose that the company’s minimum required rate of return on operating assets is 12% and that
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 line by itself.
c. Compute the Office Products Division’s residual income for next year assuming that it
performs the same as this year and adds the new product line.
d. Using the residual income approach, if you were in Dell Havasi’s position, would you accept
or reject the new product line? Explain.

Advanced Performance Management UCP-Business School

You might also like