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Accounting Principles II

short-run decision making: relevant costing

Keep or drop a division

Keep or Drop a Division an Shumard, president and general manager of Danbury Company, was concermed about the future of one of the company's largest divisions. The division's most recent quarterly income statement follows $3,751,50o 2,722,400 $1,029,100 Less: Cost of goods sold Gross proft ess:Selling and administrative expenses Operating (loss) t he a me pode a a post a nema p sa ar ti00 to oviside parties. the division ,en, sos snes eutput te aneiher @vision within the company for SS, per unt (full marufacturing cest plus 25% . The l price is set by company poicy. If the division is shut down, the user division wil buy phe part externmaly for $100 per unt The fixed . Thare is no akernative use for the facilities id shut down. The facilities and equipment will be sold and the proceeds invested to produce an annuity of s100,000 per year. Of the fixed seling and administrative expenses, 30% represent allocated expenses from corporate headquarters. varable seling ex s are SS per unit sold for units sold externaly These expenses are avoided for internal sales No varable Required Danbury Conmpany Keep or Drop a Division an Shumard, president and general manager of Danbury Company, was concermed about the future of one of the company's largest divisions. The division's most recent quarterly income statement follows $3,751,50o 2,722,400 $1,029,100 Less: Cost of goods sold Gross proft ess:Selling and administrative expenses Operating (loss) t he a me pode a a post a nema p sa ar ti00 to oviside parties. the division ,en, sos snes eutput te aneiher @vision within the company for SS, per unt (full marufacturing cest plus 25% . The l price is set by company poicy. If the division is shut down, the user division wil buy phe part externmaly for $100 per unt The fixed . Thare is no akernative use for the facilities id shut down. The facilities and equipment will be sold and the proceeds invested to produce an annuity of s100,000 per year. Of the fixed seling and administrative expenses, 30% represent allocated expenses from corporate headquarters. varable seling ex s are SS per unit sold for units sold externaly These expenses are avoided for internal sales No varable Required Danbury Conmpany

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