Complete this question by entering your answers in the tabs below.Required A1Required A2Required BRequired CBased on the preceding information, recommend whether to eliminate Division B. (Negative amounts should be indicated by aminus sign.)Contribution to profit (loss)Should Division B be eliminated?< Required A1Required A2 > Lenox Manufacturing Co. produces and sells specialized equipment used in the petroleum industry. The company is organized intothree separate operating branches: Division A, which manufactures and sells heavy equipment; Division B, which manufactures andsells 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 expectedto continue to do so. Income statements for the three divisions for year 2 follow.Division ADivision BDivision CSales$1,000,000$ 300,000$1,250,000Less: Cost of goods soldUnit-level manufacturing costsRent on manufacturing facilityGross marginLess: Operating expensesUnit-level selling and administrative expensesDivision-level fixed selling and administrative(600,000)(135,000)265,000(200,000)(75,000)25,000(750,000)(100,000)400,000(62,500)(14,000)(78,000)(80,000)(50,000)(20,000)(50,000)(100,000)(50,000)expensesHeadquarters facility-level costsNet income (loss)$72,500$ (59,000)$172,000Requireda-1. Based on the preceding information, recommend whether to eliminate Division B.a-2. Prepare company-wide income statements before and after eliminating Division B.b. During year 2, Division B produced and sold 20,000 units of hand tools. Calculate the contribution to profit if sales and productionincrease to 30,000 units in year 3.c. Suppose that Lenox could sublease Division B's manufacturing facility for $160,000, at a production and sales volume of 30,000units. Calculate the contribution to profit of Division B.

Calculation of all above requirement are as follows.

Lenox 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 year 2 follow. Division A Division B Division C $ 300,000 Sales Less: Cost of goods sold Unit-level manufacturing costs Rent on manufacturing facility Gross margin Less: Operating expenses Unit-level selling and administrative expenses Division-level fixed selling and administrative $1,000,000 $1,250,000 (600,000) (135,000) 265,000 (200,000) |(75,000) 25,000 (750,000) _(100,000) 400,000 (62,500) (14,000) (78,000) expenses Headquarters facility-level costs (80,000) (50,000) (20,000) (50,000) $ (59,000) (100,000) (50,000) Net income (loss) $ 72,500 172,000 Required a-1. Based on the preceding information, recommend whether to eliminate Division B. a-2. Prepare company-wide income statements before and after eliminating Division B. b. During year 2, Division B produced and sold 20,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 30,000 units in year 3. c. Suppose that Lenox could sublease Division B's manufacturing facility for $160,000, at a production and sales volume of 30,000 units. Calculate the contribution to profit of Division B.

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 28P