2. Billings Corporation is a decentralized wholesaler with five autonomous divisions.
The divisions are evaluated on the basis of return on investment (ROI), with year-end bonuses
given to the divisional managers who have the highest ROIs. Operating results for the
company’s Office Product Division for the most recent year are give below:

The company had an overall ROI of 15% last year (considering all divisions). The
Office Product division has an opportunity to add a new product line that would require an
additional investment in operating assets of $1,000,000. The cost and revenue characteristics
of the new product line per year would be:

The company’s headquarters wants the Office Product Division to add the new product
line. Dell Havasi, manager of the Division, is cautious, because his division’s ROI has led the
company for three years, and he doesn’t want any letdown.
Required:

【題組】(5) Which measure, ROI or residual income, is more likely to achieve goal congruence, if itis used to evaluate the subunit manager’s performance? Explain.