LaserLife Printer Cartridge Company Is a Decentralized Organization with Several

question 98

Essay

LaserLife Printer Cartridge Company is a decentralized organization with several autonomous divisions.The division managers are evaluated,in part,on the basis of the change in their return on invested assets.Operating results for the Packer Division for the upcoming year are budgeted as follows:

Total assets for the division are currently $3,600,000.For next year the division can add a new product line for an investment of $600,000.The new product line will generate sales of $1,600,000 and will incur fixed expenses of $600,000 annually.Variable costs of the new product will average 60 percent of selling price.
Required:
a.What will be the company's ROI after accepting the new product line?
b.If the company's required rate of return is 6 percent,and residual income is used to evaluate managers,would this encourage the division to accept the new product line? Explain and show computations.

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Definitions:

Sole Proprietorships

A business structure where a single individual owns and operates the business, bearing full responsibility for its debts and obligations.

Capital

Wealth in the form of money or other assets owned by a person or organization or available for a purpose such as starting a company or investing.

Business Ownership

Refers to the legal possession and control over a business entity by an individual or group.

Corporations

Legal entities that are separate from their owners, with the ability to own property, enter into contracts, and be sued.