Jordan 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 divisions, which makes and sells electric motors. Each division is housed 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 year 2 follow.
Jordan 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 divisions, which makes and sells electric motors. Each division is housed 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 year 2 follow.
Sales
Less cost of goods sold Division
| Sales Division A Division B Division C | |
| less : cost of goods sold $4,000,000 $1,150,000 $4,500,000 | |
|
unit level rent on manufacturing facility $(510,000) $(260,000) $(500,000) |
|
| Gross margin $990,000 $90,000 $1,220,000 | |
| less: operating expenses | |
| unit level selling and administrative expenses ($192,000) ($71,125) ($242,000) | |
| Division -level fixed selling and administarative expenses (320,000) ($74,000) ($242,000) | |
|
Headquaters facility-level costs ($190,000) (190,000) (190,000) Net income (loss) $288,000 ($245,125) $469,000 |
Required
a-1 Based on the preceeding information recommend whether to eliminate division B
a-2 Prepare companywide income statement before and after eliminating Division B
B- During year 2 division B produced and sold 25,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 35,000 units in year 3
c suppose that Jordan could sublease division B"s manufacturing facility for $430,000 at a production and sales volume of 35000 units. Calculate the contribution to profit of division B
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