The Consumer Services Division Is One Part of Vargas Corporation

question 128

Essay

The Consumer Services Division is one part of Vargas Corporation.The Consumer Services Division reported income of $112,000 on an investment in operating assets of $800,000 for Year 1.The division expects this level of performance to continue for Year 2.Senior management of Vargas Corporation has asked the Consumer Services Division to consider adding a new service line that would result in the following revenues and costs:
$$\begin{array} { l r } \text { Reveriues } & \$ 240,000 \\\text { Variable expenses } & 110,000 \\\text { Direct fixed expenses } & 70,000 \\\text { Average operating assets } & 500,000\end{array}$$ Required:
1)Compute the ROI that would be generated by the new product line.
2)Compute the ROI for the Consumer Services Division without the new product line.
3)Compute the Consumer Services Division's residual income without the new product line and with the new product line.The target ROI is 11%.
4)Would the new product line benefit the company as a whole? ROI for the company as a whole is 10%.Will the Consumer Services Division likely add the new product line given the company's use of ROI as a performance measure? Why or why not? Which performance evaluation measure will more likely motivate the division manager to do what is best for the company as a whole?

---

Definitions:

Dominating

An aggressive and controlling conflict style characterized by an individual's pursuit of their own interests at the expense of others'.

Rahim

Refers to M. Afzalur Rahim's work on organizational conflict and conflict management strategies, emphasizing a systematic approach.

Conflict Styles

Distinct approaches to addressing and managing conflict, including strategies such as avoidance, competition, accommodation, compromise, and collaboration.

Avoidance

The action of keeping away from or not engaging in something, particularly in regards to situations or interactions perceived as negative or harmful.