A28 SPerez Manufacturing Company produces and sells specialized equipment used in the petroleum industry. The company is organizedinto three separate operating branches: Division A, which manufactures and sells heavy equipment; Division B, which manufacturesand sells hand tools; and Division C, which makes and sells electric motors. Each division is housed in a separate manufacturingfacility. Company headquarters is located in a separate building. In recent years, Division B has been operating at a net loss and isexpected to continue to do so. Income statements for the three divisions for Year 2 follow.SalesLess: Cost of goods soldUnit-level manufacturing costsRent on manufacturing facilityGross marginLess: Operating expensesUnit-level selling and administrative expensesDivision-level fixed selling and administrative expensesHeadquarters facility-level costsNet income (loss)Complete this question by entering your answers in the tabs below.Req A1Req A2Req BCompanywide Income StatementsSalesLess: Cost of goods soldUnit-level manufacturing costsRent on manufacturing facilityGross marginLess: Operating expensesPrepare company-wide income statements before and after eliminating Division B.KeepDivision BNet income (loss)Division A$ 4,000,000Req CUnit-level selling and administrative expensesDivision-level fixed selling and administrative expensesHeadquarters facility-level costs(2,300,000)(510,000)1,190,000Requireda-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 productionincrease 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 $415,000 or operate Division B at a production and salesvolume of 37,000 units. Determine Division B's contribution margin at that level. Based on your determination, would you operateDivision B or close it?EliminateDivision B$ 477,000Division 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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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? 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?

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? 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?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 28P

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