ssume that the Commercial Division received no allocations from support departments. he president of Maxell Manufacturing has indicated that the division's return on a $2,500,000 investment must be increased to at least 21% by the end of the next year if operations are to continue. The division manager onsidering the following three proposals: roposal 1: Transfer equipment with a book value of $312,500 to other divisions at no gain or and lease similar equipment. The annual lease payments would exceed the amount of depreciation expense on the old quipment by $105,000. This increase in expense would be included as part of the cost of goods sold. Sales would remain unchanged. roposal 2: Purchase new and more efficient machining equipment and thereby reduce the cost of goods sold by $560,000 after considering the effects of depreciation expense on the new equipment. Sales would remain nchanged, and the old equipment, which has no remaining book value, would be scrapped at no gain or loss. The new equipment would increase invested assets by an additional $1,875,000 for the year. roposal 3: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $595,000, reduce cost of goods sold by $406,700, and reduce operating expenses by $175,000. Assets of $1,338,00 rould be transferred to other divisions at no gain or loss. Geguired:
ssume that the Commercial Division received no allocations from support departments. he president of Maxell Manufacturing has indicated that the division's return on a $2,500,000 investment must be increased to at least 21% by the end of the next year if operations are to continue. The division manager onsidering the following three proposals: roposal 1: Transfer equipment with a book value of $312,500 to other divisions at no gain or and lease similar equipment. The annual lease payments would exceed the amount of depreciation expense on the old quipment by $105,000. This increase in expense would be included as part of the cost of goods sold. Sales would remain unchanged. roposal 2: Purchase new and more efficient machining equipment and thereby reduce the cost of goods sold by $560,000 after considering the effects of depreciation expense on the new equipment. Sales would remain nchanged, and the old equipment, which has no remaining book value, would be scrapped at no gain or loss. The new equipment would increase invested assets by an additional $1,875,000 for the year. roposal 3: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $595,000, reduce cost of goods sold by $406,700, and reduce operating expenses by $175,000. Assets of $1,338,00 rould be transferred to other divisions at no gain or loss. Geguired:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:ssume that the Commercial Division received no allocations from support departments.
he president of Maxell Manufacturing has indicated that the division's return on a $2,500,000 investment must be increased to at least 21% by the end of the next year if operations are to continue. The division manager
onsidering the following three proposals:
roposal 1: Transfer equipment with a book value of $312,500 to other divisions at no gain or
and lease similar equipment. The annual lease payments would exceed the amount of depreciation expense on the old
quipment by $105,000. This increase in expense would be included as part of the cost of goods sold. Sales would remain unchanged.
roposal 2: Purchase new and more efficient machining equipment and thereby reduce the cost of goods sold by $560,000 after considering the effects of depreciation expense on the new equipment. Sales would remain
nchanged, and the old equipment, which has no remaining book value, would be scrapped at no gain or loss. The new equipment would increase invested assets by an additional $1,875,000 for the year.
roposal 3: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $595,000, reduce cost of goods sold by $406,700, and reduce operating expenses by $175,000. Assets of $1,338,00
rould be transferred to other divisions at no gain or loss.
Geguired:
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