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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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Ivanhoe Forest Corporation operates two divisions, the Timber Division and the Consumer Division. The Timber Division manufactures and sells logs to paper manufacturers. The Consumer Division operates retail lumber mills which sell a variety of products in the do-it-yourself homeowner market. The company is considering disposing of the Consumer Division since it has been consistently unprofitable for a number of years. The income statements for the two divisions for the year ended December 31, 2022 are presented below: 一 Timber Division Consumer Division Total Sales $1.620,000 $540,000 $2,160,000 Cost of goods sold 972,000 378,000 1,350,000 Gross profit 648,000 162.000 810,000 Selling & administrative expenses 68,040 194,400 262,440 Net income $579,960 $(104.760) $475,200 In the Consumer Division, 70% of the cost of goods sold are variable costs and 35% of selling and administrative expenses are variable costs. The management of the company feels it can save $48,600 of fixed cost of goods sold and $54,000 of fixed selling expenses if it discontinues operation of the Consumer Division. Determine whether the company should discontinue operating the Consumer Division. (Enter negative omounts using either a negative sign preceding the number eg. 45 or parentheses eg. (45). Do not leave any field blank. Enter O for the amounts. List variable expenses before fixed expenses.) Net Income Continue Eliminate Increase (Decrease) > > >
Transcribed Image Text:Ivanhoe Forest Corporation operates two divisions, the Timber Division and the Consumer Division. The Timber Division manufactures and sells logs to paper manufacturers. The Consumer Division operates retail lumber mills which sell a variety of products in the do-it-yourself homeowner market. The company is considering disposing of the Consumer Division since it has been consistently unprofitable for a number of years. The income statements for the two divisions for the year ended December 31, 2022 are presented below: 一 Timber Division Consumer Division Total Sales $1.620,000 $540,000 $2,160,000 Cost of goods sold 972,000 378,000 1,350,000 Gross profit 648,000 162.000 810,000 Selling & administrative expenses 68,040 194,400 262,440 Net income $579,960 $(104.760) $475,200 In the Consumer Division, 70% of the cost of goods sold are variable costs and 35% of selling and administrative expenses are variable costs. The management of the company feels it can save $48,600 of fixed cost of goods sold and $54,000 of fixed selling expenses if it discontinues operation of the Consumer Division. Determine whether the company should discontinue operating the Consumer Division. (Enter negative omounts using either a negative sign preceding the number eg. 45 or parentheses eg. (45). Do not leave any field blank. Enter O for the amounts. List variable expenses before fixed expenses.) Net Income Continue Eliminate Increase (Decrease) > > >
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