Simon Forest Corporation operates two divisions, the Timber Division and the Consumer Division. TheTimber Division manufactures and sells logs to paper manufacturers. The Consumer Division operatesretail lumber mills which sell a variety of products in the do-it-yourself homeowner market. The companyis considering disposing of the Consumer Division since it has been consistently unprofitable for anumber of years. The income statements for the two divisions for the year ended December 31, 2002 arepresented below:Timber DivisionConsumer DivisionTotalSalesP1,500,000 P500,000 P2,000,000Cost of goods sold900,000350.000 1.250.000Gross profitSelling & admin expenses600,000150,000750,000250,000180,000430,000Net incomeP 350,000P(30,000)P 320,000In the Consumer Division, 70% of the cost of goods sold are variable costs and 30% of selling andadministrative expenses are variable costs. The management of the company feels it can save P60,000 offixed cost of goods sold and P50,000 of fixed selling expenses if it discontinues operation of theConsumer Division.Required:1. Determine the sales revenue that may be forgone when Consumer Division is discontinued.2. Determine the avoidable costs:a. Manufacturingb. Non-manufacturing3. Determine the net advantage (disadvantage) of dropping Consumer Division.4. Should Consumer Division be dropped?Activate WineGo to Settings to

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Simon Forest Corporation operates two divisions, the Timber Division and the Consumer Division. The Timber Division manufactures and sells logs to paper manufacturers. The Consumer Division operates retail lumber mills which sell a variety of products in the do-it-yourself homeowner market. The company is considering disposing of the Consumer Division since it has been consistently unprofitable for a number of years. The income statements for the two divisions for the year ended December 31, 2002 are presented below: Timber Division Consumer Division Total Sales P1,500,000 P500,000 P2,000,000 Cost of goods sold 900,000 350,000 1,250.000 Gross profit 600,000 150,000 750,000 Selling & admin expenses 250,000 180,000 430,000 Net income P_350,000 P(30,000) P 320,000 In the Consumer Division, 70% of the cost of goods sold are variable costs and 30% of selling and administrative expenses are variable costs. The management of the company feels it can save P60,000 of fixed cost of goods sold and P50,000 of fixed selling expenses if it discontinues operation of the Consumer Division. Required: 1. Determine the sales revenue that may be forgone when Consumer Division is discontinued. 2. Determine the avoidable costs: a. Manufacturing b. Non-manufacturing 3. Determine the net advantage (disadvantage) of dropping Consumer Division. Activa

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter24: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 5TIF: Last Resort Industries Inc. is a privately held diversified company with five separate divisions...