Lenox 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 year 2 follow. Division A Division B Division C $ 300,000 Sales Less: Cost of goods sold Unit-level manufacturing costs Rent on manufacturing facility Gross margin Less: Operating expenses Unit-level selling and administrative expenses Division-level fixed selling and administrative $1,000,000 $1,250,000 (600,000) (135,000) 265,000 (200,000) |(75,000) 25,000 (750,000) _(100,000) 400,000 (62,500) (14,000) (78,000) expenses Headquarters facility-level costs (80,000) (50,000) (20,000) (50,000) $ (59,000) (100,000) (50,000) Net income (loss) $ 72,500 172,000 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 20,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 30,000 units in year 3. c. Suppose that Lenox could sublease Division B's manufacturing facility for $160,000, at a production and sales volume of 30,000 units. Calculate the contribution to profit of Division B.
Lenox 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 year 2 follow. Division A Division B Division C $ 300,000 Sales Less: Cost of goods sold Unit-level manufacturing costs Rent on manufacturing facility Gross margin Less: Operating expenses Unit-level selling and administrative expenses Division-level fixed selling and administrative $1,000,000 $1,250,000 (600,000) (135,000) 265,000 (200,000) |(75,000) 25,000 (750,000) _(100,000) 400,000 (62,500) (14,000) (78,000) expenses Headquarters facility-level costs (80,000) (50,000) (20,000) (50,000) $ (59,000) (100,000) (50,000) Net income (loss) $ 72,500 172,000 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 20,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 30,000 units in year 3. c. Suppose that Lenox could sublease Division B's manufacturing facility for $160,000, at a production and sales volume of 30,000 units. Calculate the contribution to profit of Division B.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Complete this question by entering your answers in the tabs below.
Required A1
Required A2
Required B
Required C
Based on the preceding information, recommend whether to eliminate Division B. (Negative amounts should be indicated by a
minus sign.)
Contribution to profit (loss)
Should Division B be eliminated?
< Required A1
Required A2 >
Transcribed Image Text:Lenox 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 year 2 follow.
Division A
Division B
Division C
Sales
$1,000,000
$ 300,000
$1,250,000
Less: Cost of goods sold
Unit-level manufacturing costs
Rent on manufacturing facility
Gross margin
Less: Operating expenses
Unit-level selling and administrative expenses
Division-level fixed selling and administrative
(600,000)
(135,000)
265,000
(200,000)
(75,000)
25,000
(750,000)
(100,000)
400,000
(62,500)
(14,000)
(78,000)
(80,000)
(50,000)
(20,000)
(50,000)
(100,000)
(50,000)
expenses
Headquarters facility-level costs
Net income (loss)
$
72,500
$ (59,000)
$
172,000
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 20,000 units of hand tools. Calculate the contribution to profit if sales and production
increase to 30,000 units in year 3.
c. Suppose that Lenox could sublease Division B's manufacturing facility for $160,000, at a production and sales volume of 30,000
units. Calculate the contribution to profit of Division B.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education