Munoz Manufacturing Co. produces and sells specialized equipment used in the pet
ID: 2400640 • Letter: M
Question
Munoz Manufacturing Co. produces and sells specialized equipment used in the petroleum industry. The company is organized into three separate operating branches: Division A, which manufactures and sells heavy equipment; Division B, which manufactures and sells hand tools; and Division C, which makes and sells electric motors. Each division is housed in a separate manufacturing facility. Company headquarters is located in a separate building. In recent years, Division B has been operating at a net loss and is expected to continue to do so. Income statements for the three divisions for 2017 follow.
Required
a-1. Based on the preceding information, recommend whether to eliminate Division B.
Based on the preceding information, recommend whether to eliminate Division B. (Negative amounts should be indicated by a minus sign.)
a-2. Prepare companywide income statements before and after eliminating Division B.
Prepare companywide income statements before and after eliminating Division B.
b. During 2017, Division B produced and sold 24,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 36,000 units in 2018?
During 2017, Division B produced and sold 24,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 36,000 units in 2018? (Do not round intermediate calculations.)
c. Suppose that Solomon could sublease Division B's manufacturing facility for $425,000. Assuming that Division B currently has a production and sales volume of 36,000 units, determine whether Solomon should accept the opportunity to sublease the facility or continue production at Division B.
Suppose that Munoz could sublease Division B’s manufacturing facility for $425,000, at a production and sales volume of 36,000 units. Calculate the contribution to profit of Division B. (Negative amounts should be indicated by a minus sign.)
Division A Division B Division C Sales $ 4,100,000 $ 1,224,000 $ 4,600,000 Less: Cost of goods sold Unit-level manufacturing costs (2,400,000 ) (888,000 ) (2,680,000 ) Rent on manufacturing facility (610,000 ) (265,000 ) (600,000 ) Gross margin 1,090,000 71,000 1,320,000 Less: Operating expenses Unit-level selling and admin. expenses (192,500 ) (51,240 ) (242,500 ) Division-level fixed selling and admin. expenses (330,000 ) (75,000 ) (320,000 ) Headquarters facility-level costs (170,000 ) (170,000 ) (170,000 ) Net income (loss) $ 397,500 $ (225,240 ) $ 587,500Explanation / Answer
Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. a1. Division B should be eliminated headquarter level Cost allocated to B will continue to occur even after closure of B, however still contribution to company profit is negative Net Income/(Loss) -225240 Less: Headquarters facility-level costs 170000 Net Contribution -55240 a2. Companywide Income Statements Keep Division B Eliminate Division B Sales 9924000 8700000 Less: Cost of goods sold Unit-level manufacturing costs -5968000 -5080000 Rent on manufacturing facility -1475000 -1210000 Gross margin 2481000 2410000 Less: Operating expenses Unit-level selling and admin. expenses -486240 -435000 Division-level fixed selling and admin. expenses -725000 -650000 Fixed Cost, will not be eliminated even if B is closed Headquarters facility-level costs -510000 -510000 Fixed Cost, will not be eliminated even if B is closed Net income (loss) 759760 815000 b Companywide Income Statements 24000 Units 36000 Units Sales 1224000 1836000 1224000/24000*36000 Less: Cost of goods sold Unit-level manufacturing costs -888000 -1332000 -888000/24000*36000 Rent on manufacturing facility -265000 -265000 Fixed Cost Gross margin 71000 239000 Less: Operating expenses Unit-level selling and admin. expenses -51240 -76860 -51240/24000*36000 Division-level fixed selling and admin. expenses -75000 -75000 Fixed Cost Headquarters facility-level costs Allocated cost, not be considered for Decision Making Contribution to Company Profit -55240 87140 Should Division B be eliminated? NO c Solomon should accept the opportunity to sublease the facility Sub Lease Income 425000 Less: Cost of goods sold Unit-level manufacturing costs No Manufacturing Rent on manufacturing facility -265000 Rent will be paid Gross margin 160000 Less: Operating expenses Unit-level selling and admin. expenses No SnD Division-level fixed selling and admin. expenses No SnD Headquarters facility-level costs Contribution to Company Profit 160000
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