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You have been asked to assist the management of Ironwood Corporation in arriving at certain decisions. Ironwood has its home office in Michigan and leases factory buildings in Wisconsin, Minnesota, and North Dakota, all of which produce the same product. Ironwood's management provided you with a projection of operations for next year, as follows.

Total Wisconsin Minnesota North Dakota

Sales revenue $871,000 $441,000 $270,000 $160,000

Fixed costs

Factory 208,000 108,000 51,000 49,000

Administration 68,000 42,000 20,000 6,000

Variable costs 296,000 135,000 89,000 72,000

Allocated home office costs99,000 44,000 33,000 22,000

Total $671,000 $329,000 $193,000 $149,000

Operating profit $200,000 $112,000 $77,000 $11,000

The sales price per unit is $5.

Due to the marginal results of operations of the factory in North Dakota, Ironwood has decided to cease its operations and sell that factory's machinery and equipment by the end of this year. Ironwood expects that the proceeds from the sale of these assets would equal all termination costs. Ironwood, however, would like to continue serving most of its customers in that area if it is economically feasible and is considering one of the following three alternatives:

Expand the operations of the Minnesota factory by using space presently idle. This move would result in the following changes in that factory's operations.

Increase over Minnesota factory's current operations

Sales revenue 50%

Fixed costs

Factory 21

Administration 10

Under this proposal, variable costs would be $2 per unit sold.

Enter into a long-term contract with a competitor that will serve that area's customers. This competitor would pay Ironwood a royalty of $0.9 per unit based on an estimate of 31,000 units being sold.

Close the North Dakota factory and not expand the operations of the Minnesota factory.

Total home office costs of $99,000 will remain the same under each situation.

Required:

To assist the management of Ironwood Corporation, complete the following schedule computing Ironwood's estimated operating profit from each of the following options:

a.Expansion of the Minnesota factory.

b.Negotiation of the long-term contract on a royalty basis.

c.Shutdown of the North Dakota operations with no expansion at other locations.

Table A: IronWood corporation

Computation of estimated profit from operations adter expension of Mn factory

Minnesota Factory:

-

-

Costs

-

-

-

-

Total:

-

-

Less: homes office costs previously allocated in North Dakota Factory

Required B: Table

Ironwood corporation

Computation of estimated profit from operations after negotiation of royalty contract

Estimated operating profit:

- -

- -

- -

-

Less: home office costs previously allocated to North Dekota factory -

- -

Required C

Ironwood corporation

Computation of estimated profit from operations after shutdown of North Dekota factory;

Estimated operating profit

-

-

-

Less: home office costs previously allocated to North Dakota Factory

-

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