Whether to eliminate Division Z.

Question

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Answer 1

Question

Chapter 6, Problem 29PSB

a.

To determine

Whether to eliminate Division Z.

a.

Expert Solution

Explanation of Solution

Special order decisions: Special order decisions include circumstances in which the board must choose whether to acknowledge abnormal customer orders. These requests or orders normally necessitate special dispensation or include a demand for lesser price.

Outsourcing: It can be termed as conveying all or part of an activity to a supplier or a provider. While outsourcing was initially limited to fundamental activities, it as of now invades the administration of numerous organizations.

Opportunity cost: Opportunity cost is the forfeit of certain benefits such as cost savings, incomes, which is surrendered by not picking an option. Opportunity costs are applicable in decisions where the acknowledgment of one option disqualifies the likelihood of selecting different alternatives.

Determine the contribution to profit

Contibution to Profit=[Sales Revenue−Manufacturing Costs−Rent on Facility−Unit Level Selling & Admin Costs−Division Level Selling & Admin Costs]=[$1,500,000−$900,000−$360,000−$90,000−$180,000]=−$30,000

Therefore the contribution to profit is -$30,000.

Conclusion

From the results obtained above, the contribution to profit is negative at -$30,000. Hence the Division Z should be eliminated.

Therefore Division Z should be eliminated.

To determine

Preparing the companywide income statement before and after eliminating Division Z.

Expert Solution

Explanation of Solution

The companywide income statement before eliminating Division Z is as follows:

Fundamental Managerial Accounting Concepts, Chapter 6, Problem 29PSB , additional homework tip 1

Table (1)

(Refer excel for workings)

The companywide income statement after eliminating Division Z is as follows:

Fundamental Managerial Accounting Concepts, Chapter 6, Problem 29PSB , additional homework tip 2

Table (2)

(Refer excel for workings)

b.

To determine

Whether the recommendations in Requirement A changes if the units increase to 30,000 units by comparing differential revenue and avoidable cost for Division Z.

b.

Expert Solution

Explanation of Solution

Initiate by calculating the selling price per unit and the cost per unit that will change in respect to the quantity of units produced and traded. The result is divided with the total cost for each category by 30,000 units to get cost per unit. The headquarters facility-level costs are not considered from the investigation since these costs are not avoidable.

Determine the selling price per unit

Selling Price per unit=[SalesNumber of Units]=[$1,500,00030,000]=$50

Therefore the selling price per unit is $50.

Determine the unit level manufacturing costs

Unit Level Manufacturing Costs=[Actual CostsNumber of Units]=[$900,00030,000]=$30

Therefore the unit level manufacturing costs is $30.

Determine the unit level selling and administrative costs

Unit Level Administrative Costs=[Actual CostsNumber of Units]=[$900,00030,000]=$30

Therefore the unit level selling and administrative costs is $30.

Determine the contribution to profit

The comparison between differential revenue and avoidable cost is determined in the below step.

Contibution to Profit=[Sales −Manufacturing Costs−Rent on Facility−Unit Level Selling & Admin Costs−Division Level Selling & Admin Costs]=[($50×45,000)−($30×45,000)−$360,000−($3×45,000)−$180,000]=[$2,250,000−$1,350,000−$360,000−$135,000−$180,000]=$225,000

Therefore the contribution to profit is $225,000.

Conclusion

From the results obtained above, Division Z would give a contribution to profit at 45,000 units. Hence the division should not be eliminated. Additionally, it is vital to contemplate development prospective before choosing to eliminate a segment.

Therefore Division Z should not be eliminated.

c.

To determine

Whether to operate the division with volume of 30,000 units or it should be closed.

c.

Expert Solution

Explanation of Solution

The reasons on whether to operate the division with volume of 30,000 units or it should be closed is as follows:

It is mentioned that Company BC is paying $360,000 to lease the manufacturing facility for Division Z.
The business could earn $380,000 ($320,000-$150,000) by subleasing the manufacturing facility.
By operating the division, the organization is allowing up the chance to sublease the office.
This is an opportunity cost that would be avoidable by eliminating Division Z.
Consequently, it must be incorporated into the investigation. If the volume is 45,000 units Division Z contributes $225,000 as profit.

Determine the profit or loss of the division

Profit or Loss=[Profit−Opportunity Cost]=[$225,000−$380,000]=−$155,000

Therefore the loss of the division is -$155,000.

Conclusion

When the opportunity cost is considered, the profit turns into a loss of $155,000. According to these conditions, Division Z should be eliminated.

Therefore Division Z should be eliminated.

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Answer 2

Question

Chapter 6, Problem 29PSB

a.

To determine

Whether to eliminate Division Z.

a.

Expert Solution

Explanation of Solution

Special order decisions: Special order decisions include circumstances in which the board must choose whether to acknowledge abnormal customer orders. These requests or orders normally necessitate special dispensation or include a demand for lesser price.

Outsourcing: It can be termed as conveying all or part of an activity to a supplier or a provider. While outsourcing was initially limited to fundamental activities, it as of now invades the administration of numerous organizations.

Opportunity cost: Opportunity cost is the forfeit of certain benefits such as cost savings, incomes, which is surrendered by not picking an option. Opportunity costs are applicable in decisions where the acknowledgment of one option disqualifies the likelihood of selecting different alternatives.

Determine the contribution to profit

Contibution to Profit=[Sales Revenue−Manufacturing Costs−Rent on Facility−Unit Level Selling & Admin Costs−Division Level Selling & Admin Costs]=[$1,500,000−$900,000−$360,000−$90,000−$180,000]=−$30,000

Therefore the contribution to profit is -$30,000.

Conclusion

From the results obtained above, the contribution to profit is negative at -$30,000. Hence the Division Z should be eliminated.

Therefore Division Z should be eliminated.

To determine

Preparing the companywide income statement before and after eliminating Division Z.

Expert Solution

Explanation of Solution

The companywide income statement before eliminating Division Z is as follows:

Fundamental Managerial Accounting Concepts, Chapter 6, Problem 29PSB , additional homework tip 1

Table (1)

(Refer excel for workings)

The companywide income statement after eliminating Division Z is as follows:

Fundamental Managerial Accounting Concepts, Chapter 6, Problem 29PSB , additional homework tip 2

Table (2)

(Refer excel for workings)

b.

To determine

Whether the recommendations in Requirement A changes if the units increase to 30,000 units by comparing differential revenue and avoidable cost for Division Z.

b.

Expert Solution

Explanation of Solution

Initiate by calculating the selling price per unit and the cost per unit that will change in respect to the quantity of units produced and traded. The result is divided with the total cost for each category by 30,000 units to get cost per unit. The headquarters facility-level costs are not considered from the investigation since these costs are not avoidable.

Determine the selling price per unit

Selling Price per unit=[SalesNumber of Units]=[$1,500,00030,000]=$50

Therefore the selling price per unit is $50.

Determine the unit level manufacturing costs

Unit Level Manufacturing Costs=[Actual CostsNumber of Units]=[$900,00030,000]=$30

Therefore the unit level manufacturing costs is $30.

Determine the unit level selling and administrative costs

Unit Level Administrative Costs=[Actual CostsNumber of Units]=[$900,00030,000]=$30

Therefore the unit level selling and administrative costs is $30.

Determine the contribution to profit

The comparison between differential revenue and avoidable cost is determined in the below step.

Contibution to Profit=[Sales −Manufacturing Costs−Rent on Facility−Unit Level Selling & Admin Costs−Division Level Selling & Admin Costs]=[($50×45,000)−($30×45,000)−$360,000−($3×45,000)−$180,000]=[$2,250,000−$1,350,000−$360,000−$135,000−$180,000]=$225,000

Therefore the contribution to profit is $225,000.

Conclusion

From the results obtained above, Division Z would give a contribution to profit at 45,000 units. Hence the division should not be eliminated. Additionally, it is vital to contemplate development prospective before choosing to eliminate a segment.

Therefore Division Z should not be eliminated.

c.

To determine

Whether to operate the division with volume of 30,000 units or it should be closed.

c.

Expert Solution

Explanation of Solution

The reasons on whether to operate the division with volume of 30,000 units or it should be closed is as follows:

It is mentioned that Company BC is paying $360,000 to lease the manufacturing facility for Division Z.
The business could earn $380,000 ($320,000-$150,000) by subleasing the manufacturing facility.
By operating the division, the organization is allowing up the chance to sublease the office.
This is an opportunity cost that would be avoidable by eliminating Division Z.
Consequently, it must be incorporated into the investigation. If the volume is 45,000 units Division Z contributes $225,000 as profit.

Determine the profit or loss of the division

Profit or Loss=[Profit−Opportunity Cost]=[$225,000−$380,000]=−$155,000

Therefore the loss of the division is -$155,000.

Conclusion

When the opportunity cost is considered, the profit turns into a loss of $155,000. According to these conditions, Division Z should be eliminated.

Therefore Division Z should be eliminated.

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Answer 3

Question

Chapter 6, Problem 29PSB

a.

To determine

Whether to eliminate Division Z.

a.

Expert Solution

Explanation of Solution

Special order decisions: Special order decisions include circumstances in which the board must choose whether to acknowledge abnormal customer orders. These requests or orders normally necessitate special dispensation or include a demand for lesser price.

Outsourcing: It can be termed as conveying all or part of an activity to a supplier or a provider. While outsourcing was initially limited to fundamental activities, it as of now invades the administration of numerous organizations.

Opportunity cost: Opportunity cost is the forfeit of certain benefits such as cost savings, incomes, which is surrendered by not picking an option. Opportunity costs are applicable in decisions where the acknowledgment of one option disqualifies the likelihood of selecting different alternatives.

Determine the contribution to profit

Contibution to Profit=[Sales Revenue−Manufacturing Costs−Rent on Facility−Unit Level Selling & Admin Costs−Division Level Selling & Admin Costs]=[$1,500,000−$900,000−$360,000−$90,000−$180,000]=−$30,000

Therefore the contribution to profit is -$30,000.

Conclusion

From the results obtained above, the contribution to profit is negative at -$30,000. Hence the Division Z should be eliminated.

Therefore Division Z should be eliminated.

To determine

Preparing the companywide income statement before and after eliminating Division Z.

Expert Solution

Explanation of Solution

The companywide income statement before eliminating Division Z is as follows:

Fundamental Managerial Accounting Concepts, Chapter 6, Problem 29PSB , additional homework tip 1

Table (1)

(Refer excel for workings)

The companywide income statement after eliminating Division Z is as follows:

Fundamental Managerial Accounting Concepts, Chapter 6, Problem 29PSB , additional homework tip 2

Table (2)

(Refer excel for workings)

b.

To determine

Whether the recommendations in Requirement A changes if the units increase to 30,000 units by comparing differential revenue and avoidable cost for Division Z.

b.

Expert Solution

Explanation of Solution

Initiate by calculating the selling price per unit and the cost per unit that will change in respect to the quantity of units produced and traded. The result is divided with the total cost for each category by 30,000 units to get cost per unit. The headquarters facility-level costs are not considered from the investigation since these costs are not avoidable.

Determine the selling price per unit

Selling Price per unit=[SalesNumber of Units]=[$1,500,00030,000]=$50

Therefore the selling price per unit is $50.

Determine the unit level manufacturing costs

Unit Level Manufacturing Costs=[Actual CostsNumber of Units]=[$900,00030,000]=$30

Therefore the unit level manufacturing costs is $30.

Determine the unit level selling and administrative costs

Unit Level Administrative Costs=[Actual CostsNumber of Units]=[$900,00030,000]=$30

Therefore the unit level selling and administrative costs is $30.

Determine the contribution to profit

The comparison between differential revenue and avoidable cost is determined in the below step.

Contibution to Profit=[Sales −Manufacturing Costs−Rent on Facility−Unit Level Selling & Admin Costs−Division Level Selling & Admin Costs]=[($50×45,000)−($30×45,000)−$360,000−($3×45,000)−$180,000]=[$2,250,000−$1,350,000−$360,000−$135,000−$180,000]=$225,000

Therefore the contribution to profit is $225,000.

Conclusion

From the results obtained above, Division Z would give a contribution to profit at 45,000 units. Hence the division should not be eliminated. Additionally, it is vital to contemplate development prospective before choosing to eliminate a segment.

Therefore Division Z should not be eliminated.

c.

To determine

Whether to operate the division with volume of 30,000 units or it should be closed.

c.

Expert Solution

Explanation of Solution

The reasons on whether to operate the division with volume of 30,000 units or it should be closed is as follows:

It is mentioned that Company BC is paying $360,000 to lease the manufacturing facility for Division Z.
The business could earn $380,000 ($320,000-$150,000) by subleasing the manufacturing facility.
By operating the division, the organization is allowing up the chance to sublease the office.
This is an opportunity cost that would be avoidable by eliminating Division Z.
Consequently, it must be incorporated into the investigation. If the volume is 45,000 units Division Z contributes $225,000 as profit.

Determine the profit or loss of the division

Profit or Loss=[Profit−Opportunity Cost]=[$225,000−$380,000]=−$155,000

Therefore the loss of the division is -$155,000.

Conclusion

When the opportunity cost is considered, the profit turns into a loss of $155,000. According to these conditions, Division Z should be eliminated.

Therefore Division Z should be eliminated.

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Answer 4

Question

Chapter 6, Problem 29PSB

a.

To determine

Whether to eliminate Division Z.

a.

Expert Solution

Explanation of Solution

Special order decisions: Special order decisions include circumstances in which the board must choose whether to acknowledge abnormal customer orders. These requests or orders normally necessitate special dispensation or include a demand for lesser price.

Outsourcing: It can be termed as conveying all or part of an activity to a supplier or a provider. While outsourcing was initially limited to fundamental activities, it as of now invades the administration of numerous organizations.

Opportunity cost: Opportunity cost is the forfeit of certain benefits such as cost savings, incomes, which is surrendered by not picking an option. Opportunity costs are applicable in decisions where the acknowledgment of one option disqualifies the likelihood of selecting different alternatives.

Determine the contribution to profit

Contibution to Profit=[Sales Revenue−Manufacturing Costs−Rent on Facility−Unit Level Selling & Admin Costs−Division Level Selling & Admin Costs]=[$1,500,000−$900,000−$360,000−$90,000−$180,000]=−$30,000

Therefore the contribution to profit is -$30,000.

Conclusion

From the results obtained above, the contribution to profit is negative at -$30,000. Hence the Division Z should be eliminated.

Therefore Division Z should be eliminated.

To determine

Preparing the companywide income statement before and after eliminating Division Z.

Expert Solution

Explanation of Solution

The companywide income statement before eliminating Division Z is as follows:

Fundamental Managerial Accounting Concepts, Chapter 6, Problem 29PSB , additional homework tip 1

Table (1)

(Refer excel for workings)

The companywide income statement after eliminating Division Z is as follows:

Fundamental Managerial Accounting Concepts, Chapter 6, Problem 29PSB , additional homework tip 2

Table (2)

(Refer excel for workings)

b.

To determine

Whether the recommendations in Requirement A changes if the units increase to 30,000 units by comparing differential revenue and avoidable cost for Division Z.

b.

Expert Solution

Explanation of Solution

Initiate by calculating the selling price per unit and the cost per unit that will change in respect to the quantity of units produced and traded. The result is divided with the total cost for each category by 30,000 units to get cost per unit. The headquarters facility-level costs are not considered from the investigation since these costs are not avoidable.

Determine the selling price per unit

Selling Price per unit=[SalesNumber of Units]=[$1,500,00030,000]=$50

Therefore the selling price per unit is $50.

Determine the unit level manufacturing costs

Unit Level Manufacturing Costs=[Actual CostsNumber of Units]=[$900,00030,000]=$30

Therefore the unit level manufacturing costs is $30.

Determine the unit level selling and administrative costs

Unit Level Administrative Costs=[Actual CostsNumber of Units]=[$900,00030,000]=$30

Therefore the unit level selling and administrative costs is $30.

Determine the contribution to profit

The comparison between differential revenue and avoidable cost is determined in the below step.

Contibution to Profit=[Sales −Manufacturing Costs−Rent on Facility−Unit Level Selling & Admin Costs−Division Level Selling & Admin Costs]=[($50×45,000)−($30×45,000)−$360,000−($3×45,000)−$180,000]=[$2,250,000−$1,350,000−$360,000−$135,000−$180,000]=$225,000

Therefore the contribution to profit is $225,000.

Conclusion

From the results obtained above, Division Z would give a contribution to profit at 45,000 units. Hence the division should not be eliminated. Additionally, it is vital to contemplate development prospective before choosing to eliminate a segment.

Therefore Division Z should not be eliminated.

c.

To determine

Whether to operate the division with volume of 30,000 units or it should be closed.

c.

Expert Solution

Explanation of Solution

The reasons on whether to operate the division with volume of 30,000 units or it should be closed is as follows:

It is mentioned that Company BC is paying $360,000 to lease the manufacturing facility for Division Z.
The business could earn $380,000 ($320,000-$150,000) by subleasing the manufacturing facility.
By operating the division, the organization is allowing up the chance to sublease the office.
This is an opportunity cost that would be avoidable by eliminating Division Z.
Consequently, it must be incorporated into the investigation. If the volume is 45,000 units Division Z contributes $225,000 as profit.

Determine the profit or loss of the division

Profit or Loss=[Profit−Opportunity Cost]=[$225,000−$380,000]=−$155,000

Therefore the loss of the division is -$155,000.

Conclusion

When the opportunity cost is considered, the profit turns into a loss of $155,000. According to these conditions, Division Z should be eliminated.

Therefore Division Z should be eliminated.

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Answer 5

Chapter 6, Problem 29PSB

a.

To determine

Whether to eliminate Division Z.

a.

Expert Solution

Explanation of Solution

Special order decisions: Special order decisions include circumstances in which the board must choose whether to acknowledge abnormal customer orders. These requests or orders normally necessitate special dispensation or include a demand for lesser price.

Outsourcing: It can be termed as conveying all or part of an activity to a supplier or a provider. While outsourcing was initially limited to fundamental activities, it as of now invades the administration of numerous organizations.

Opportunity cost: Opportunity cost is the forfeit of certain benefits such as cost savings, incomes, which is surrendered by not picking an option. Opportunity costs are applicable in decisions where the acknowledgment of one option disqualifies the likelihood of selecting different alternatives.

Determine the contribution to profit

Contibution to Profit=[Sales Revenue−Manufacturing Costs−Rent on Facility−Unit Level Selling & Admin Costs−Division Level Selling & Admin Costs]=[$1,500,000−$900,000−$360,000−$90,000−$180,000]=−$30,000

Therefore the contribution to profit is -$30,000.

Conclusion

From the results obtained above, the contribution to profit is negative at -$30,000. Hence the Division Z should be eliminated.

Therefore Division Z should be eliminated.

To determine

Preparing the companywide income statement before and after eliminating Division Z.

Expert Solution

Explanation of Solution

The companywide income statement before eliminating Division Z is as follows:

Fundamental Managerial Accounting Concepts, Chapter 6, Problem 29PSB , additional homework tip 1

Table (1)

(Refer excel for workings)

The companywide income statement after eliminating Division Z is as follows:

Fundamental Managerial Accounting Concepts, Chapter 6, Problem 29PSB , additional homework tip 2

Table (2)

(Refer excel for workings)

b.

To determine

Whether the recommendations in Requirement A changes if the units increase to 30,000 units by comparing differential revenue and avoidable cost for Division Z.

b.

Expert Solution

Explanation of Solution

Initiate by calculating the selling price per unit and the cost per unit that will change in respect to the quantity of units produced and traded. The result is divided with the total cost for each category by 30,000 units to get cost per unit. The headquarters facility-level costs are not considered from the investigation since these costs are not avoidable.

Determine the selling price per unit

Selling Price per unit=[SalesNumber of Units]=[$1,500,00030,000]=$50

Therefore the selling price per unit is $50.

Determine the unit level manufacturing costs

Unit Level Manufacturing Costs=[Actual CostsNumber of Units]=[$900,00030,000]=$30

Therefore the unit level manufacturing costs is $30.

Determine the unit level selling and administrative costs

Unit Level Administrative Costs=[Actual CostsNumber of Units]=[$900,00030,000]=$30

Therefore the unit level selling and administrative costs is $30.

Determine the contribution to profit

The comparison between differential revenue and avoidable cost is determined in the below step.

Contibution to Profit=[Sales −Manufacturing Costs−Rent on Facility−Unit Level Selling & Admin Costs−Division Level Selling & Admin Costs]=[($50×45,000)−($30×45,000)−$360,000−($3×45,000)−$180,000]=[$2,250,000−$1,350,000−$360,000−$135,000−$180,000]=$225,000

Therefore the contribution to profit is $225,000.

Conclusion

From the results obtained above, Division Z would give a contribution to profit at 45,000 units. Hence the division should not be eliminated. Additionally, it is vital to contemplate development prospective before choosing to eliminate a segment.

Therefore Division Z should not be eliminated.

c.

To determine

Whether to operate the division with volume of 30,000 units or it should be closed.

c.

Expert Solution

Explanation of Solution

The reasons on whether to operate the division with volume of 30,000 units or it should be closed is as follows:

It is mentioned that Company BC is paying $360,000 to lease the manufacturing facility for Division Z.
The business could earn $380,000 ($320,000-$150,000) by subleasing the manufacturing facility.
By operating the division, the organization is allowing up the chance to sublease the office.
This is an opportunity cost that would be avoidable by eliminating Division Z.
Consequently, it must be incorporated into the investigation. If the volume is 45,000 units Division Z contributes $225,000 as profit.

Determine the profit or loss of the division

Profit or Loss=[Profit−Opportunity Cost]=[$225,000−$380,000]=−$155,000

Therefore the loss of the division is -$155,000.

Conclusion

When the opportunity cost is considered, the profit turns into a loss of $155,000. According to these conditions, Division Z should be eliminated.

Therefore Division Z should be eliminated.

Answer 6

Chapter 6, Problem 29PSB

a.

To determine

Whether to eliminate Division Z.

a.

Expert Solution

Explanation of Solution

Special order decisions: Special order decisions include circumstances in which the board must choose whether to acknowledge abnormal customer orders. These requests or orders normally necessitate special dispensation or include a demand for lesser price.

Outsourcing: It can be termed as conveying all or part of an activity to a supplier or a provider. While outsourcing was initially limited to fundamental activities, it as of now invades the administration of numerous organizations.

Opportunity cost: Opportunity cost is the forfeit of certain benefits such as cost savings, incomes, which is surrendered by not picking an option. Opportunity costs are applicable in decisions where the acknowledgment of one option disqualifies the likelihood of selecting different alternatives.

Determine the contribution to profit

Contibution to Profit=[Sales Revenue−Manufacturing Costs−Rent on Facility−Unit Level Selling & Admin Costs−Division Level Selling & Admin Costs]=[$1,500,000−$900,000−$360,000−$90,000−$180,000]=−$30,000

Therefore the contribution to profit is -$30,000.

Conclusion

From the results obtained above, the contribution to profit is negative at -$30,000. Hence the Division Z should be eliminated.

Therefore Division Z should be eliminated.

Answer 7

Chapter 6, Problem 29PSB

a.

To determine

Whether to eliminate Division Z.

Answer 8

a.

Expert Solution

Explanation of Solution

Special order decisions: Special order decisions include circumstances in which the board must choose whether to acknowledge abnormal customer orders. These requests or orders normally necessitate special dispensation or include a demand for lesser price.

Outsourcing: It can be termed as conveying all or part of an activity to a supplier or a provider. While outsourcing was initially limited to fundamental activities, it as of now invades the administration of numerous organizations.

Opportunity cost: Opportunity cost is the forfeit of certain benefits such as cost savings, incomes, which is surrendered by not picking an option. Opportunity costs are applicable in decisions where the acknowledgment of one option disqualifies the likelihood of selecting different alternatives.

Determine the contribution to profit

Contibution to Profit=[Sales Revenue−Manufacturing Costs−Rent on Facility−Unit Level Selling & Admin Costs−Division Level Selling & Admin Costs]=[$1,500,000−$900,000−$360,000−$90,000−$180,000]=−$30,000

Therefore the contribution to profit is -$30,000.

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

Conclusion

From the results obtained above, the contribution to profit is negative at -$30,000. Hence the Division Z should be eliminated.

Therefore Division Z should be eliminated.

Answer 13

To determine

Preparing the companywide income statement before and after eliminating Division Z.

Expert Solution

Explanation of Solution

The companywide income statement before eliminating Division Z is as follows:

Fundamental Managerial Accounting Concepts, Chapter 6, Problem 29PSB , additional homework tip 1

Table (1)

(Refer excel for workings)

The companywide income statement after eliminating Division Z is as follows:

Fundamental Managerial Accounting Concepts, Chapter 6, Problem 29PSB , additional homework tip 2

Table (2)

(Refer excel for workings)

Answer 14

To determine

Preparing the companywide income statement before and after eliminating Division Z.

Answer 15

Expert Solution

Explanation of Solution

The companywide income statement before eliminating Division Z is as follows:

Fundamental Managerial Accounting Concepts, Chapter 6, Problem 29PSB , additional homework tip 1

Table (1)

(Refer excel for workings)

The companywide income statement after eliminating Division Z is as follows:

Fundamental Managerial Accounting Concepts, Chapter 6, Problem 29PSB , additional homework tip 2

Table (2)

(Refer excel for workings)

Answer 16

Expert Solution

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

b.

To determine

Whether the recommendations in Requirement A changes if the units increase to 30,000 units by comparing differential revenue and avoidable cost for Division Z.

b.

Expert Solution

Explanation of Solution

Initiate by calculating the selling price per unit and the cost per unit that will change in respect to the quantity of units produced and traded. The result is divided with the total cost for each category by 30,000 units to get cost per unit. The headquarters facility-level costs are not considered from the investigation since these costs are not avoidable.

Determine the selling price per unit

Selling Price per unit=[SalesNumber of Units]=[$1,500,00030,000]=$50

Therefore the selling price per unit is $50.

Determine the unit level manufacturing costs

Unit Level Manufacturing Costs=[Actual CostsNumber of Units]=[$900,00030,000]=$30

Therefore the unit level manufacturing costs is $30.

Determine the unit level selling and administrative costs

Unit Level Administrative Costs=[Actual CostsNumber of Units]=[$900,00030,000]=$30

Therefore the unit level selling and administrative costs is $30.

Determine the contribution to profit

The comparison between differential revenue and avoidable cost is determined in the below step.

Contibution to Profit=[Sales −Manufacturing Costs−Rent on Facility−Unit Level Selling & Admin Costs−Division Level Selling & Admin Costs]=[($50×45,000)−($30×45,000)−$360,000−($3×45,000)−$180,000]=[$2,250,000−$1,350,000−$360,000−$135,000−$180,000]=$225,000

Therefore the contribution to profit is $225,000.

Conclusion

From the results obtained above, Division Z would give a contribution to profit at 45,000 units. Hence the division should not be eliminated. Additionally, it is vital to contemplate development prospective before choosing to eliminate a segment.

Therefore Division Z should not be eliminated.

Answer 20

b.

To determine

Whether the recommendations in Requirement A changes if the units increase to 30,000 units by comparing differential revenue and avoidable cost for Division Z.

Answer 21

b.

Expert Solution

Explanation of Solution

Initiate by calculating the selling price per unit and the cost per unit that will change in respect to the quantity of units produced and traded. The result is divided with the total cost for each category by 30,000 units to get cost per unit. The headquarters facility-level costs are not considered from the investigation since these costs are not avoidable.

Determine the selling price per unit

Selling Price per unit=[SalesNumber of Units]=[$1,500,00030,000]=$50

Therefore the selling price per unit is $50.

Determine the unit level manufacturing costs

Unit Level Manufacturing Costs=[Actual CostsNumber of Units]=[$900,00030,000]=$30

Therefore the unit level manufacturing costs is $30.

Determine the unit level selling and administrative costs

Unit Level Administrative Costs=[Actual CostsNumber of Units]=[$900,00030,000]=$30

Therefore the unit level selling and administrative costs is $30.

Determine the contribution to profit

The comparison between differential revenue and avoidable cost is determined in the below step.

Contibution to Profit=[Sales −Manufacturing Costs−Rent on Facility−Unit Level Selling & Admin Costs−Division Level Selling & Admin Costs]=[($50×45,000)−($30×45,000)−$360,000−($3×45,000)−$180,000]=[$2,250,000−$1,350,000−$360,000−$135,000−$180,000]=$225,000

Therefore the contribution to profit is $225,000.

Answer 22

b.

Expert Solution

Answer 23

b.

Expert Solution

Answer 24

Expert Solution

Answer 25

Conclusion

From the results obtained above, Division Z would give a contribution to profit at 45,000 units. Hence the division should not be eliminated. Additionally, it is vital to contemplate development prospective before choosing to eliminate a segment.

Therefore Division Z should not be eliminated.

Answer 26

c.

To determine

Whether to operate the division with volume of 30,000 units or it should be closed.

c.

Expert Solution

Explanation of Solution

The reasons on whether to operate the division with volume of 30,000 units or it should be closed is as follows:

It is mentioned that Company BC is paying $360,000 to lease the manufacturing facility for Division Z.
The business could earn $380,000 ($320,000-$150,000) by subleasing the manufacturing facility.
By operating the division, the organization is allowing up the chance to sublease the office.
This is an opportunity cost that would be avoidable by eliminating Division Z.
Consequently, it must be incorporated into the investigation. If the volume is 45,000 units Division Z contributes $225,000 as profit.

Determine the profit or loss of the division

Profit or Loss=[Profit−Opportunity Cost]=[$225,000−$380,000]=−$155,000

Therefore the loss of the division is -$155,000.

Conclusion

When the opportunity cost is considered, the profit turns into a loss of $155,000. According to these conditions, Division Z should be eliminated.

Therefore Division Z should be eliminated.

Answer 27

c.

To determine

Whether to operate the division with volume of 30,000 units or it should be closed.

Answer 28

c.

Expert Solution

Explanation of Solution

The reasons on whether to operate the division with volume of 30,000 units or it should be closed is as follows:

It is mentioned that Company BC is paying $360,000 to lease the manufacturing facility for Division Z.
The business could earn $380,000 ($320,000-$150,000) by subleasing the manufacturing facility.
By operating the division, the organization is allowing up the chance to sublease the office.
This is an opportunity cost that would be avoidable by eliminating Division Z.
Consequently, it must be incorporated into the investigation. If the volume is 45,000 units Division Z contributes $225,000 as profit.

Determine the profit or loss of the division

Profit or Loss=[Profit−Opportunity Cost]=[$225,000−$380,000]=−$155,000