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.

Farleigh Petroleum, Inc., is a small company that acquires high-grade crude oil from low-volume production wells owned by individuals and small partnerships. The crude oil is processed in a single refinery into Two Oil, Six Oil, and impure distillates. Farleigh Petroleum does not have the technology or capacity to process these products further and sells most of its output each month to major refineries. There were no beginning finished goods or work-in-process inventories on April 1. The production costs and output of Farleigh Petroleum for April are as follows: Crude oil placed into production Direct labor and related costs Manufacturing overhead Data on barrels produced and selling price: $6,400,000 1,500,000 3,000,000 Two Oil, 300,000 barrels produced; sales price, $45 per barrel Six Oil, 180,000 barrels produced; sales price, $25 per barrel Distillates, 90,000 barrels produced; sales price, $14 per barrel Required: 1. Calculate the amount of joint production cost that Farleigh…

Ag-Coop is a large farm cooperative with a number of agriculture-related manufacturing and service divisions. As a cooperative, it pays no federal income taxes. The company owns a fertilizer plant that processes and mixes petrochemical compounds into three brands of agricultural fertilizer: greenup, maintane, and winterizer. The three brands differ with respect to selling price and the proportional content of basic chemicals. Ag-Coop's Fertilizer Manufacturing Division transfers the completed product to the cooperative's Retail Sales Division at a price based on the cost of each type of fertilizer plus a markup. The Manufacturing Division is completely automated so that the only costs it incurs are the costs of the petrochemical feedstocks plus overhead that is considered fixed. The primary feedstock costs $1.60 per pound. Each 100 pounds of feedstock can produce either of the following mixtures of fertilizer. Greenup Maintane Winterizer Product Greenup Maintane Winterizer Output…

Whitehill Chemicals has two operating divisions. Its Formulation Division in the United States mixes, processes, and tests basic chemicals, and then ships them to Ireland, where the company's Commercial Division uses the chemicals to produce and sell various products. Operating expenses amount to $26.6 million in the U.S. and $78.6 million in Ireland exclusive of the costs of any goods transferred from the U.S. Revenues in Ireland are $201 million. If the chemicals were purchased from one of the company's Irish mixing divisions, the costs would be $39.6 million. However, if it had been purchased from an independent U.S. supplier, the cost would be $52.6 million. The marginal income tax rate is 20 percent in the U.S. and 12 percent in Ireland. Required: What is the company's total tax liability to both jurisdictions for each of the two alternative transfer pricing scenarios ($39.6 million and $52.6 million)? Note: Enter your answers in dollars and not in millions of dollars. Total tax…