its output to another division within the company for $83 per unit (full manufacturing cost plus 25%). The internal price is set by company policy. If the division is shut down, the user division will buy the part externally for $100 per unit. The fixed overhead assigned per unit is $20. There is no alternative use for the facilities if shut down. The facilities and equipment will be sold and the proceeds invested to produce an annuity of $100,000 per year. Of the fixed selling and administrative expenses, 30% represent allocated expenses from corporate headquarters. Variable selling expenses are $5 per unit sold for units sold externally. These expenses are avoided for internal sales. No variable administrative expenses are incurred. Required: 1. Prepare an income statement that more accurately reflects the division's profit performance. Round intermediate calculations to the nearest cent. Round final answers to the nearest dollar.
its output to another division within the company for $83 per unit (full manufacturing cost plus 25%). The internal price is set by company policy. If the division is shut down, the user division will buy the part externally for $100 per unit. The fixed overhead assigned per unit is $20. There is no alternative use for the facilities if shut down. The facilities and equipment will be sold and the proceeds invested to produce an annuity of $100,000 per year. Of the fixed selling and administrative expenses, 30% represent allocated expenses from corporate headquarters. Variable selling expenses are $5 per unit sold for units sold externally. These expenses are avoided for internal sales. No variable administrative expenses are incurred. Required: 1. Prepare an income statement that more accurately reflects the division's profit performance. Round intermediate calculations to the nearest cent. Round final answers to the nearest dollar.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![Keep or Drop a Division
Jan Shumard, president and general manager of Danbury Company, was concerned about the future of
one of the company's largest divisions. The division's most recent quarterly income statement follows:
$3,751,500
Sales
Less:
Less:
Cost of goods sold
Gross profit
Selling and administrative expenses
Operating (loss)
2,722,400
$1,029,100
1,100,000
$ (70,900)
Jan is giving serious consideration to shutting down the division because this is the ninth consecutive
quarter that it has shown a loss. To help him in his decision, the following additional information has been
gathered:
The division produces one product at a selling price of $100 to outside parties. The division sells 50% of
its output to another division within the company for $83 per unit (full manufacturing cost plus 25%). The
internal price is set by company policy. If the division is shut down, the user division will buy the part
externally for $100 per unit.
The fixed overhead assigned per unit is $20.
There is no alternative use for the facilities if shut down. The facilities and equipment will be sold and the
proceeds invested to produce an annuity of $100,000 per year. Of the fixed selling and administrative
expenses, 30% represent allocated expenses from corporate headquarters. Variable selling expenses are
$5 per unit sold for units sold externally. These expenses are avoided for internal sales. No variable
administrative expenses are incurred.
Required:
1. Prepare an income statement that more accurately reflects the division's profit performance. Round
intermediate calculations to the nearest cent. Round final answers to the nearest dollar.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff24b4320-b9ce-457a-aa04-8d2663e75eb1%2F8baf3c7d-3e92-453f-9956-c97dd1447ee2%2Fgauau2m_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Keep or Drop a Division
Jan Shumard, president and general manager of Danbury Company, was concerned about the future of
one of the company's largest divisions. The division's most recent quarterly income statement follows:
$3,751,500
Sales
Less:
Less:
Cost of goods sold
Gross profit
Selling and administrative expenses
Operating (loss)
2,722,400
$1,029,100
1,100,000
$ (70,900)
Jan is giving serious consideration to shutting down the division because this is the ninth consecutive
quarter that it has shown a loss. To help him in his decision, the following additional information has been
gathered:
The division produces one product at a selling price of $100 to outside parties. The division sells 50% of
its output to another division within the company for $83 per unit (full manufacturing cost plus 25%). The
internal price is set by company policy. If the division is shut down, the user division will buy the part
externally for $100 per unit.
The fixed overhead assigned per unit is $20.
There is no alternative use for the facilities if shut down. The facilities and equipment will be sold and the
proceeds invested to produce an annuity of $100,000 per year. Of the fixed selling and administrative
expenses, 30% represent allocated expenses from corporate headquarters. Variable selling expenses are
$5 per unit sold for units sold externally. These expenses are avoided for internal sales. No variable
administrative expenses are incurred.
Required:
1. Prepare an income statement that more accurately reflects the division's profit performance. Round
intermediate calculations to the nearest cent. Round final answers to the nearest dollar.
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