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Zachary 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 2017 follow.

	Division A				Division B				Division C
Sales	$	4,500,000			$	1,170,000			$	4,400,000
Less: Cost of goods sold
Unit-level manufacturing costs		(2,900,000	)			(832,000	)			(2,780,000	)
Rent on manufacturing facility		(510,000	)			(280,000	)			(500,000	)
Gross margin		1,090,000				58,000				1,120,000
Less: Operating expenses
Unit-level selling and admin. expenses		(197,000	)			(56,810	)			(247,000	)
Division-level fixed selling and admin. expenses		(330,000	)			(84,000	)			(329,000	)
Headquarters facility-level costs		(190,000	)			(190,000	)			(190,000	)
Net income (loss)	$	373,000			$	(272,810	)		$	354,000

Required

1. a-1. Based on the preceding information, recommend whether to eliminate Division B.

2. a-2. Prepare companywide income statements before and after eliminating Division B.

3. b. During 2017, Division B produced and sold 26,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 38,000 units in 2018?

4. c. Suppose that Solomon could sublease Division B's manufacturing facility for $420,000. Assuming that Division B currently has a production and sales volume of 38,000 units, determine whether Solomon should accept the opportunity to sublease the facility or continue production at Division B.

Prepare companywide income statements before and after eliminating Division B.

	Companywide Income Statements Keep Division B Eliminate Division B Sales Less: Cost of goods sold Unit-level manufacturing costs Rent on manufacturing facility Gross margin $0 $0 Less: Operating expenses Unit-level selling and admin. expenses Division-level fixed selling and admin. expenses Headquarters facility-level costs Net income (loss) $0 $0

During 2017, Division B produced and sold 26,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 38,000 units in 2018? (Do not round intermediate calculations.)

	Contribution to profit (loss) Should Division B be eliminated?

Suppose that Zachary could sublease Division Bs manufacturing facility for $420,000, at a production and sales volume of 38,000 units. Calculate the contribution to profit of Division B. (Negative amounts should be indicated by a minus sign.)

	Contribution to profit (loss) Should Division B be eliminated?

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