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    Kirsi Products' East Division

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    Kirsi Products is decentralized. Division bonuses are based on return on investment (ROI), and so division managers are very careful about their ROI. Operating results for the company's East Division for last year are given below when the company's overall ROI was 18%:

    Sales $ 25,200,000
    Variable expenses 14,000,000
    Contribution margin 11,200,000
    Fixed expenses 9,158,800
    Net operating income $ 2,041,200
    Divisional operating assets $ 5,600,000

    East Division has an opportunity to add a new product line with an investment of $3,000,000 with the following expected results:

    Sales $ 9,300,000
    Variable expenses 65% of sales
    Fixed expenses $ 2,604,000

    Compute the East Division's ROI for last year and if the new product line is added.

    2. If you were in the East Division's manager, would you accept or reject the new product line?

    3. Why do you suppose Krisi Products is anxious for the East Division to add the new product line?

    4. Suppose that Krisi Product's minimum required rate of return on operating assets is 15% and that bonuses are based on residual income.

    a. Compute the East Division's residual income for last year and after the new product line is added.

    b. Under these circumstances, if you were East Division's manager would you accept or reject the new product line?

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    https://brainmass.com/business/accounting/kirsi-products-east-division-546449

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    2. If you were in Fred Halloway's position, would you accept or reject the new ...

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    Your tutorial is attached. Click in cells to see computations. Reasons are given in one sentence each.

    $2.19

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