Question

In: Accounting

DIVISION I : SALES, VAR COSTS AND FIXED COSTS ARE 4,000, 1000 AND 1800, RESPECTIVELY DIVISION...

DIVISION I : SALES, VAR COSTS AND FIXED COSTS ARE 4,000, 1000 AND 1800, RESPECTIVELY

DIVISION II: THE NUMBERS ARE 5,000, 3,000 AND 2800, RESPECTIVELY

DIVISION III : THE NUMBERS ARE 6,000, 1200 AND 1400 , RESPECTIVELY

CASE A: IF WE DUMP DIV II, THE FIXED COSTS WILL REMAIN IN FULL

CASE B: IF WE DUMP IT, THE FIXES COSTS WILL BE TOTALLY ELIMINATED

CASE C: IF WE DUMP IT, 50% WILL BE ELIMINATED

D: IF WE DUMP IT , 60% OF THE FIXED COSTS WILL BE ELIMINATED

FOR EACH CASE DECIDE WHETHER TO DUMP OR KEEP DIV. II AND GIVE A ONE OR TWO SENTENCE EXPLANATION FOR YOUR DECISION

Solutions

Expert Solution

Calculation of profit or loss of Division II at present situation:

Sales           5,000
Less: Variable cost           3,000
Contribution Margin           2,000
Less : Fixed cost           2,800
Loss               800

CASE A: KEEP

If we dump Div II, the fixed costs will remain in full. that means If we dump then fixed cost of 2800 will be loss with respect to Div II. However at present Div II has loss of only 800. Therefore Div II should keep and not to dump as it is saving loss by 2000 ( 2800 - 800 )

CASE B: DUMP

If we dump Div II, the fixed costs will totally eliminated. that means If we dump then fixed cost of 2800 will fully eliminated thus no profit and no loss. However at present Div II has loss of 800. Therefore Div II should dump and not to keep as it is saving loss by 800 if DIv II runs.

CASE C: KEEP

If we dump Div II, the fixed costs 50% will be eliminated. that means If we dump then fixed cost of 1400 (2800*50%) will eliminated and result in loss of 1400 (2800*50%) as fixed cost with respect to Div II. However at present Div II has loss of only 800. Therefore Div II should keep and not to dump as it is saving loss by 600 ( 1400 - 800 )

CASE D: KEEP

If we dump Div II, the fixed costs 60% will be eliminated. that means If we dump then fixed cost of 1680 (2800*60%) will eliminated and result in loss of 1120 ( 2800*40%) as fixed cost with respect to Div II. However at present Div II has loss of only 800. Therefore Div II should keep and not to dump as it is saving loss by 320 ( 1120 - 800 )


Related Solutions

Total sales revenue is $1000, total variable costs are $600 and total fixed costs are $1000....
Total sales revenue is $1000, total variable costs are $600 and total fixed costs are $1000. The price is $10 per unit. Compute the break-even volume in units (assume that the break-even point is in the relevant range). A) 166.7 units B) 250 units C) 280 units D) 2500 units Beta company allocates fixed overhead costs based on direct labor dollars, with an allocation rate of $5 per DL$. Beta sells 1000 units of product X per month at a...
Process A has fixed costs of $1000 and variable costs of $5 per unit. Process B...
Process A has fixed costs of $1000 and variable costs of $5 per unit. Process B has fixed costs of $500 and variable costs of $15 per unit. The crossover point between process A and process B is 50 units. Suppose the forcast demand for next year is 100 units, according to question 1) , process B will be better. True or False?
A project currently generates sales of $9million, variable costs equal 40% of sales, and fixed costs...
A project currently generates sales of $9million, variable costs equal 40% of sales, and fixed costs are $1.8 million. The firm’s tax rate is 30%. Assume all sales and expenses are cash items. a. What are the effects on cash flow if sales increase from $9million to $9.9m? (Input the amount as positive value. Enter answer in dollars not millions) b. What are the effects on cash flow if variable costs increase to 55% of sales? (Input amount as a...
Hi, I need to distinguish between fixed costs and variable costs, but I have no idea...
Hi, I need to distinguish between fixed costs and variable costs, but I have no idea where to even start. Could you please explain? Simple answer will suffice. Thank you Revenue Total revenue Cost of revenue Gross profit Operating activities Research & development Selling, general & administrative Non-recurring Other operating expenses Total operating expenses Operating income Income from continuing operations Net other income EBIT Interest expense Income before tax Income tax expense Minority interest Net income from continuing ops Non-recurring...
Bonita Division has the following data: Sales $495000 Variable expenses 235000 Fixed expenses 285000 The fixed...
Bonita Division has the following data: Sales $495000 Variable expenses 235000 Fixed expenses 285000 The fixed costs are not avoidable and must be allocated to profitable divisions if the segment is eliminated. What will be the incremental effect on net income if Bonita Division is eliminated?
AD Company estimates that variable costs will be 70% of sales and fixed costs will total...
AD Company estimates that variable costs will be 70% of sales and fixed costs will total $1,800,000. The selling price of the product is $10, and 700,000 units will be sold. Instructions: Using the mathematical equation (a) Compute the break-even point in units and dollars.               (b) Compute the margin of safety in dollars and as a ratio.         (c) Compute net income.                                                             
Hamood Plumbing Co. estimates that variable costs will be 70% of sales and fixed costs will...
Hamood Plumbing Co. estimates that variable costs will be 70% of sales and fixed costs will total OMR 2,160,000. The selling price of the product is OMR 10, and 750,000 units will be sold. Instructions Using the mathematical equation, (a) Compute the break-even point in units and Omani Riyals. (b) Compute the margin of safety in Riyals and as a ratio. (c) Compute net income. Problem 2 Ibri, Inc. owns a machine that produces baskets for the gift packages the...
Glacial Company estimates that variable costs will be 63.2% of sales, and fixed costs will total...
Glacial Company estimates that variable costs will be 63.2% of sales, and fixed costs will total $655,000. The selling price of the product is $3.90. Compute the break-even point in (1) units and (2) dollars. a. Break even sales __ units b. Break even sales __ $$ Assuming actual sales are $2,115,000, compute the margin of safety in (1) dollars and (2) as a ratio. a. Margin of safety __ $$ b. Margin of safety ratio (as percentage)
Because your division has a high amount of fixed costs, you are aware that a way...
Because your division has a high amount of fixed costs, you are aware that a way to increase the current year’s profits is to overproduce. That is, a lower fixed cost per unit could be obtained by spreading the division's fixed costs over a larger amount of output than is needed to meet customer demand. Sure, you'd end up with excess inventory, but a good portion of your fixed costs would be deferred into the inventory balance sheet account. This...
I work in a high school. What are fixed costs of a school? The variable costs?
I work in a high school. What are fixed costs of a school? The variable costs?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT