Foot B, Inc., is a small manufacturer of professional football equipment. The company has two divisions: the Pad Division and the Helmet Division. Data for the month of June are as follows:

Jacques, the company’s chief financial officer since June 1 of the current year, wants to close the unprofitable Pad Division. He believes that doing so will benefit Foot B and benefit him, given that his end-of-year bonus is to be based on the company’s overall operating income. In a recent interview, Jacques summarized his business philosophy as follows: “A company is only as strong as its least profitable segment. As long as I’m at the financial helm, only the strongest shall survive at Foot B.”

Instructions
a. Had the Pad Division been closed on June 1, what would the company’s operating income for the month have been?
b. After learning about Jacques’s business philosophy, the Pad Division’s director of marketing made the following statement: “Jacques may understand numbers, but he doesn’t understand the complementary relationship between pads and helmets, nor the seasonal nature of our business.” What did the director of marketing mean by this statement? How might such information influence Jacques’s assessment of the company’s Pad Division?
c. By how much would the Pad Division’s monthly sales have to increase for it to generate a positive responsibility margin of $2,000 in any given month? Show all yourcomputations.

Transcribed Image Text:

Profit Centers Helmet Company Division Division $70,000 $30,000 $40,000 15,000 Contribution margin $40,000 $15,000 $25,000 18,000 12,000 Division responsibility margin$10,000 (3,000) $13,000 Entire Pad Sales Variable costs 30,000 30,000 4,000 15,000 Traceable fixed costs Common fixed costs Monthly operating income. .. 6,000