| | | Borris 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 2013 follow. | | | Division A | Division B | Division C | | Sales | $ | 3,400,000 | | $ | 1,056,000 | | $ | 4,000,000 | | | Less: Cost of goods sold | | | | | | | | | | | Unit-level manufacturing costs | | (2,000,000 | ) | | (726,000 | ) | | (2,480,000 | ) | | Rent on manufacturing facility | | (610,000 | ) | | (305,000 | ) | | (500,000 | ) | | | | | | | | | | | | | Gross margin | | 790,000 | | | 25,000 | | | 1,020,000 | | | Less: Operating expenses | | | | | | | | | | | Unit-level selling and admin. expenses | | (188,500 | ) | | (48,070 | ) | | (238,500 | ) | | Division-level fixed selling and admin. expenses | | (270,000 | ) | | (67,000 | ) | | (312,000 | ) | | Headquarters facility-level costs | | (170,000 | ) | | (170,000 | ) | | (170,000 | ) | | | | | | | | | | | | | Net income (loss) | $ | 161,500 | | $ | (260,070 | ) | $ | 299,500 | | | | | | | | | | | | | | | | a-1. | Calculate the contribution to profit of Division B. (Negative amount should be indicated by a minus sign.) | | a-2. | Should Division B be eliminated? | | | | | | | | a-3. | Prepare the companywide income statements before and after eliminating Division B. | | b-1. | During 2013, Division B produced and sold 22,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 32,000 units in 2014? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations.) | | b-2. | Should Division B be eliminated? | | | | | | | | c-1. | Suppose that Borris could sublease Division Bs manufacturing facility for $455,000, at a production and sales volume of 32,000 units. Calculate the contribution to profit of Division B. (Do not round your intermediate calculations. Negative amount should be indicated by a minus sign.) | | c-2. | Should Division B be eliminated? | | | | | | | |
