A Manufacturing company has three production lines, and the company's income statement for 2021 showed...
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A Manufacturing company has three production lines, and the company's income statement for 2021 showed the following results: Items Man Child Female Total Sales 500,000 2,000,000 1,500,000 4000,000 Less: variable cost (350,000) (1200,000) (900,000) (2450,000) Contribution margin 150,000 800,0000 600,000 1550,000 Less: Direct Fixed cost (100,000) (400,000) (250,000) (750,000) Less: Indirect Fixed cost (70,500) (300,000) (220,500) (591,000) Operating Income (20,500) 100,000 129,500 209,000 Because of the continuous losses of the men's division during the past years, the management is considering closing the division in the belief that this will increase the company's total profits. Further, the direct fixed costs of the men's division will be saved if we close this division while only 50% of the indirect fixed cost will be saved if we close this division. The method used by the company to distribute the indirect cost is based on the sales volume. Required: Determine whether the decision to close the men's division is correct or not?
A Manufacturing company has three production lines, and the company's income statement for 2021 showed the following results:
Items
Man
Child
Female
Total
Sales
500,000
2,000,000
1,500,000
4000,000
Less: variable cost
(350,000)
(1200,000)
(900,000)
(2450,000)
Contribution margin
150,000
800,0000
600,000
1550,000
Less: Direct Fixed cost
(100,000)
(400,000)
(250,000)
(750,000)
Less: Indirect Fixed cost
(70,500)
(300,000)
(220,500)
(591,000)
Operating Income
(20,500)
100,000
129,500
209,000
Because of the continuous losses of the men's division during the past years, the management is considering closing the division in the belief that this will increase the company's total profits. Further, the direct fixed costs of the men's division will be saved if we close this division while only 50% of the indirect fixed cost will be saved if we close this division. The method used by the company to distribute the indirect cost is based on the sales volume.
Required:
Determine whether the decision to close the men's division is correct or not?
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