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= operating branches: Division A, which manufactures and sells heavy equipment; Div s; and Division C, which makes and sells electric motors. Each division is housed in a eadquarters is located in a separate building. In recent years, Division B has been op ue to do so. Income statements for the three divisions for Year 2 follow. ods sold ufacturing costs acturing facility Division A $ 4,000,000 (2,300,000) (510,000) Divis: $1,2 (9 (2

= operating branches: Division A, which manufactures and sells heavy equipment; Div s; and Division C, which makes and sells electric motors. Each division is housed in a eadquarters is located in a separate building. In recent years, Division B has been op ue to do so. Income statements for the three divisions for Year 2 follow. ods sold ufacturing costs acturing facility Division A $ 4,000,000 (2,300,000) (510,000) Divis: $1,2 (9 (2

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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S Perez Manufacturing Company produces and sells specialized equipment used in the petroleum industry. The company is organized into three separate operating branches: Division A, which manufactures and sells heavy equipment; Division B, which manufactures and sells hand tools; and Division C, which makes and sells electric motors. Each division is housed in a separate manufacturing facility. Company headquarters is located in a separate building. In recent years, Division B has been operating at a net loss and is expected to continue to do so. Income statements for the three divisions for Year 2 follow. Sales Less: Cost of goods sold Unit-level manufacturing costs Rent on manufacturing facility Gross margin Less: Operating expenses Unit-level selling and administrative expenses Division-level fixed selling and administrative expenses Headquarters facility-level costs Net income (loss) Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B Companywide Income Statements Sales Less: Cost of goods sold Unit-level manufacturing costs Rent on manufacturing facility Gross margin Less: Operating expenses Prepare company-wide income statements before and after eliminating Division B. Keep Division B Net income (loss) Division A $ 4,000,000 Req C Unit-level selling and administrative expenses Division-level fixed selling and administrative expenses Headquarters facility-level costs (2,300,000) (510,000) 1,190,000 Required a-1. Based on the preceding information, recommend whether to eliminate Division B. a-2. Prepare company-wide income statements before and after eliminating Division B. b. During Year 2, Division B produced and sold 24,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 37,000 units in Year 3. Should Division B be eliminated? (193,000) (340,000) (180,000) c. Suppose that Perez could sublease Division B's manufacturing facility for $415,000 or operate Division B at a production and sales volume of 37,000 units. Determine Division B's contribution margin at that level. Based on your determination, would you operate Division B or close it? Eliminate Division B $ 477,000 Division B $1,296,000 (936,000) (270,000) 90,000 (59,160) (76,000) (180,000) $ (225,160) Division C $ 4,500,000 (2,580,000) (700,000) 1,220,000 (243,000) (321,000) (180,000) $ 476,000
Transcribed Image Text:S Perez Manufacturing Company produces and sells specialized equipment used in the petroleum industry. The company is organized into three separate operating branches: Division A, which manufactures and sells heavy equipment; Division B, which manufactures and sells hand tools; and Division C, which makes and sells electric motors. Each division is housed in a separate manufacturing facility. Company headquarters is located in a separate building. In recent years, Division B has been operating at a net loss and is expected to continue to do so. Income statements for the three divisions for Year 2 follow. Sales Less: Cost of goods sold Unit-level manufacturing costs Rent on manufacturing facility Gross margin Less: Operating expenses Unit-level selling and administrative expenses Division-level fixed selling and administrative expenses Headquarters facility-level costs Net income (loss) Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B Companywide Income Statements Sales Less: Cost of goods sold Unit-level manufacturing costs Rent on manufacturing facility Gross margin Less: Operating expenses Prepare company-wide income statements before and after eliminating Division B. Keep Division B Net income (loss) Division A $ 4,000,000 Req C Unit-level selling and administrative expenses Division-level fixed selling and administrative expenses Headquarters facility-level costs (2,300,000) (510,000) 1,190,000 Required a-1. Based on the preceding information, recommend whether to eliminate Division B. a-2. Prepare company-wide income statements before and after eliminating Division B. b. During Year 2, Division B produced and sold 24,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 37,000 units in Year 3. Should Division B be eliminated? (193,000) (340,000) (180,000) c. Suppose that Perez could sublease Division B's manufacturing facility for $415,000 or operate Division B at a production and sales volume of 37,000 units. Determine Division B's contribution margin at that level. Based on your determination, would you operate Division B or close it? Eliminate Division B $ 477,000 Division B $1,296,000 (936,000) (270,000) 90,000 (59,160) (76,000) (180,000) $ (225,160) Division C $ 4,500,000 (2,580,000) (700,000) 1,220,000 (243,000) (321,000) (180,000) $ 476,000
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