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?
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- 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 manufacturing cost $(2,500,000) (800,000) $(2,780,000) rent on manufacturing facility $(510,000) $(260,000) $(500,000) Gross margin…Simon Forest Corporation operates two divisions, the Timber Division and the Consumer Division. The Timber Division manufactures and sells logs to paper manufacturers. The Consumer Division operates retail lumber mills which sell a variety of products in the do-it-yourself homeowner market. The company is considering disposing of the Consumer Division since it has been consistently unprofitable for a number of years. The income statements for the two divisions for the year ended December 31, 2002 are presented below: Timber Division Consumer Division Total Sales P1,500,000 P500,000 P2,000,000 Cost of goods sold 900,000 350.000 1.250.000 Gross profit Selling & admin expenses 600,000 150,000 750,000 250,000 180,000 430,000 Net income P 350,000 P(30,000) P 320,000 In the Consumer Division, 70% of the cost of goods sold are variable costs and 30% of selling and administrative expenses are variable costs. The management of the company feels it can save P60,000 of fixed cost of goods sold…Corcoran Heavy Industries Company (CHIC) is organized into four divisions, each of which operates in a different industry. The types of customer served and the method used to distribute products differ across all four of these industries. In addition, each division must comply with its own unique set of industry regulations related to issues such as safety and recyclability of materials.Operating profit before depreciation and amortization is the measure of profit regularly used by the chief operating decision maker for evaluating the performance of each of these divisions. In addition, information for each division on capital expenditures and depreciation and amortization is routinely provided by corporate headquarters to the chief operating decision maker. A summary of the information provided to the chief operating decision maker at the end of the current year is as follows:Required I. Prepare a report for CHIC's management evaluating whether the operating segments disclosures…
- Trump Forest Corporation operates two divisions, the Timber Division and the Consumer Division. The Timber Division manufactures and sells logs to paper manufacturers. The Consumer Division operates retail lumber mills which sell a variety of products in the do-it-yourself homeowner market. The company is considering disposing of the Consumer Division since it has been consistently unprofitable for a number of years. The income statements for the two divisions for the year ended December 31, 2019 are presented below: Timber Division Consumer Division Total Sales $1,500,000 $500,000 $2,000,000 Cost of goods sold 900,000 350,000…Phoenix Inc., a cellular communication company, has multiple business units, organized as divisions. Each division’s management is compensated based on the division’s operating income. Division A currently purchases cellular equipment from outside markets and uses it to produce communication systems. Division B produces similar cellular equipment that it sells to outside customers—but not to division A at this time. Division A’s manager approaches division B’s manager with a proposal to buy the equipment from division B. If it produces the cellular equipment that division A desires, division B will incur variable manufacturing costs of $60 per unit. Relevant Information about Division B Sells 90,000 units of equipment to outside customers at $130 per unit Operating capacity is currently 80%; the division can operate at 100% Variable manufacturing costs are $70 per unit Variable marketing costs are $8 per unit Fixed manufacturing costs are $900,000 Income per Unit for Division A…Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions (investment centers): soap products, skin lotions, and hair products. Information about the most recent year's operations follows. The information includes the value of intangible assets, including research and development, patents, and other innovations that are not included on HSC's balance sheet. Were these intangibles to be included in the financial statements (as they are for EVAⓇ), the increase in the balance sheet and the increase in after-tax operating income would be as given below: Soap products Skin lotions Division Hair products Minimum desired rate of return Cost of capital Required: Operating Income $ 3,250,000 2,750,000 5,000,000 5.00% 4.00% Average Total Assets $ 60,000,000 33,000,000 55,000,000 Value of Intangibles $ 1,500,000 8,000,000 1,000,000 Intangibles' Effect on Income $ 1,000,000 6,000,000 700,000 1. Calculate the return on investment (ROI) for each division.…
- The Kelly-Elias Corporation, manufacturer of tractors and other heavy farm equipment, is organized along decentralized product lines, with each manufacturing division operating as a separate profit center. Each division manager has been delegated full authority on all decisions involving the sale of that division’s output both to outsiders and to other divisions of Kelly-Elias. Division C has in the past always purchased its requirement of a particular tractor-engine component from division A. However, when informed that division A is increasing its selling price to $135, division C’s manager decides to purchase the engine component from external suppliers. Division C can purchase the component for $115 per unit in the open market. Division A insists that, because of the recent installation of some highly specialized equipment and the resulting high depreciation charges, it will not be able to earn an adequate return on its investment unless it raises its price. Division A’s manager…The Kelly-Elias Corporation, manufacturer of tractors and other heavy farm equipment, is organized along decentralized product lines, with each manufacturing division operating as a separate profit center. Each division manager has been delegated full authority on all decisions involving the sale of that division’s output both to outsiders and to other divisions of Kelly-Elias. Division C has in the past always purchased its requirement of a particular tractor-engine component from division A. However, when informed that division A is increasing its selling price to $135, division C’s manager decides to purchase the engine component from external suppliers. Division C can purchase the component for $115 per unit in the open market. Division A insists that, because of the recent installation of some highly specialized equipment and the resulting high depreciation charges, it will not be able to earn an adequate return on its investment unless it raises its price. Division A’s manager…Raddington Industries produces tool and die machinery for manufacturers. The company expanded vertically in 20x1 by acquiring one of its suppliers of alloy steel plates, Keimer Steel Company. To manage the two separate businesses, the operations of Keimer are reported separately as an investment center. Raddington monitors its divisions on the basis of both unit contribution and return on average investment (ROI), with investment defined as average operating assets employed. Management bonuses are determined on ROI. All investments in operating assets are expected to earn a minimum return of 13 percent before income taxes. Keimer's cost of goods sold is considered to be entirely variable, while the division's administrative expenses are not dependent on volume. Selling expenses are a mixed cost with 40 percent attributed to sales volume. Keimercontemplated a capital acquisition with an estimated ROI of 14.5 percent;however, division management decided against the investment because…
- Alfa-Group, together with its subsidiaries as a group, is principally engaged in the provision of integrated logistic services, which include the planning, procurement and logistics management of construction materials mainly for infrastructure projects in Banten Province.Mr. Dono suggested in his report that no depreciation is required for the warehouses since they are investment properties rather than property, plant and equipment.Warehouses are investment properties because rental is charged to the customers if they delay the receipt of cargoes from the warehouses. Required: Assume that you are Mr. Kasino, the finance manager, and draft a report for Mr. Indro, the Chairman of Alfa-Group. In your report, you should discuss and comment on Mr. Dono’s argument that the warehouses should be treated as investment properties so thatthey are not subject to depreciation.The Kelly-Elias Corporation, manufacturer of tractors and other heavy farm equipment, is organized along decentralized product lines, with each manufacturing division operating as a separate profit center. Each division manager has been delegated full authority on all decisions involving the sale of that division’s output both to outsiders and to other divisions of Kelly-Elias. Division C has in the past always purchased its requirement of a particular tractor-engine component from division A. However, when informed that division A is increasing its selling price to $135, division C’s manager decides to purchase the engine component from external suppliers. Division C can purchase the component for $115 per unit in the open market. Division A insists that, because of the recent installation of some highly specialized equipment and the resulting high depreciation charges, it will not be able to earn an adequate return on its investment unless it raises its price. Division A’s manager…Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions (investment centers): soap products, skin lotions, and hair products. Information about the most recent year's operations follows. The information includes the value of intangible assets, including research and development, patents, and other innovations that are not included on HSC's balance sheet. Were these intangibles to be included in the financial statements (as they are for EVA"), the increase in the balance sheet and the increase in after-tax operating income would be as given below: Division Soap products Skin lotions. Hair products Minimum desired rate of return Cost of capital Operating Income $ 3,248,500 2,748,500 4,998,500 1. Return on investment (ROI) 2. Residual income (RI) 3. EVAⓇ Soap Products 5.00% 4.00% % Average Total Assets $ 59,998,500 32,998,500 54,998,500 Required: 1. Calculate the return on investment (ROI) for each division. (Round your answers to 2 decimal…