Based on the following analysis of last year’s operations of Groves, Inc., a financial vice president of the company believes that the firm’s total net income could be increased by \($(560,000)\) if its design division were discontinued. (Amounts are given in thousands of dollars.)

Required 

Provide answers for each of the following independent situations:

a. Assuming that total fixed costs and expenses would not be affected by discontinuing the design division, prepare an analysis showing why you agree or disagree with the vice president.

b. Assume that discontinuance of the design division will enable the company to avoid 30% of the fixed portion of cost of services and 40% of the fixed operating expenses allocated to the design division. Calculate the resulting effect on net income.

c. Assume that in addition to the cost avoidance in requirement (b), the capacity released by discontinuance of the design division can be used to provide 6,000 new services that would have a variable cost per service of \($60\) and would require additional fixed costs totaling \($80,000.\) At what unit price must the new service be sold if Groves is to increase its total net income by \($180,000?\)

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Totals All Other Divisions Design Division Sales. $18,400 $14,400 $4,000 Cost of services: Variable. (7,600) (5,600) (2,000) Fixed. (4,800) (4,000) (800) Gross profit. Operating expenses: Variable.... Fixed.. $ 6,000 $ 4,800 $1,200 (3,360) (1,600) (2,000) (1,200) (1,360) (400) Net income (loss) $ 1,040 $ 1,600 $ (560)