The operations of Bunga Raya Sdn Bhd (BRSB) are divided into the Fix Division and the Split Division. The extracted income statement for the last financial year is as follows: Items Fix Division (RM) Split Division (RM) Total (RM) Sales revenue 80,000 47,000 127,000 Variable expense 30,000 29,000 59,000 Fixed cost: Allocated common costs 7,000 6,500 13,500 Line supervisor 12,000 11,000 23,000 Maintenance of equipment 2,000 1,500 3,500 Depreciation of equipment 7,500 7,000 14,500 Office rental 2,000 3,000 5,000 Profit (Loss) 19,500 (11,000) 8,500 This is the third year in a row that Split Division is making a loss. Therefore, the management is considering of discontinuing this division. If the division is closed, the equipment and office used for Split Division will not be utilised for other purpose. REQUIRED: Evaluate whether it is worthwhile for BRSB to drop Split Division. Discuss THREE (3) examples of qualitative factors that any organization should consider before dropping any of their division.
The operations of Bunga Raya Sdn Bhd (BRSB) are divided into the Fix Division and the Split Division. The extracted income statement for the last financial year is as follows: Items Fix Division (RM) Split Division (RM) Total (RM) Sales revenue 80,000 47,000 127,000 Variable expense 30,000 29,000 59,000 Fixed cost: Allocated common costs 7,000 6,500 13,500 Line supervisor 12,000 11,000 23,000 Maintenance of equipment 2,000 1,500 3,500 Depreciation of equipment 7,500 7,000 14,500 Office rental 2,000 3,000 5,000 Profit (Loss) 19,500 (11,000) 8,500 This is the third year in a row that Split Division is making a loss. Therefore, the management is considering of discontinuing this division. If the division is closed, the equipment and office used for Split Division will not be utilised for other purpose. REQUIRED: Evaluate whether it is worthwhile for BRSB to drop Split Division. Discuss THREE (3) examples of qualitative factors that any organization should consider before dropping any of their division.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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- The operations of Bunga Raya Sdn Bhd (BRSB) are divided into the Fix Division and the Split Division. The extracted income statement for the last financial year is as follows:
|
Items |
Fix Division (RM) |
|
Split Division (RM) |
|
Total (RM) |
|
Sales revenue |
80,000 |
|
47,000 |
|
127,000 |
|
Variable expense |
30,000 |
|
29,000 |
|
59,000 |
|
Fixed cost: |
|
|
|
|
|
|
Allocated common costs |
7,000 |
|
6,500 |
|
13,500 |
|
Line supervisor |
12,000 |
|
11,000 |
|
23,000 |
|
Maintenance of equipment |
2,000 |
|
1,500 |
|
3,500 |
|
|
7,500 |
|
7,000 |
|
14,500 |
|
Office rental |
2,000 |
|
3,000 |
|
5,000 |
|
|
19,500 |
|
(11,000) |
|
8,500 |
This is the third year in a row that Split Division is making a loss. Therefore, the management is considering of discontinuing this division. If the division is closed, the equipment and office used for Split Division will not be utilised for other purpose.
REQUIRED:
- Evaluate whether it is worthwhile for BRSB to drop Split Division.
- Discuss THREE (3) examples of qualitative factors that any organization should consider before dropping any of their division.
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