8. You have been asked to assist the management of Ironwood Corporation in arriving at certain decisions. Ironwood has its home office in Michigan and leases factory buildings in Wisconsin, Minnesota, and North Dakota, all of which produce the same product. Ironwood's management provided you with a projection of operations for next year, as follows.

	Total			Wisconsin			Minnesota			North Dakota
Sales revenue	$	883,000		$	435,000		$	283,000		$	165,000
Fixed costs
Factory		216,000			115,000			51,000			50,000
Administration		68,000			38,000			24,000			6,000
Variable costs		294,000			134,000			85,000			75,000
Allocated home office costs		96,000			43,000			34,000			19,000
Total	$	674,000		$	330,000		$	194,000		$	150,000
Operating profit	$	209,000		$	105,000		$	89,000		$	15,000

The sales price per unit is $5.

Due to the marginal results of operations of the factory in North Dakota, Ironwood has decided to cease its operations and sell that factory's machinery and equipment by the end of this year. Ironwood expects that the proceeds from the sale of these assets would equal all termination costs. Ironwood, however, would like to continue serving most of its customers in that area if it is economically feasible and is considering one of the following three alternatives:

Expand the operations of the Minnesota factory by using space presently idle. This move would result in the following changes in that factory's operations.

Increase over Minnesota factory's current operations
Sales revenue	50	%
Fixed costs
Factory	21
Administration	9

Under this proposal, variable costs would be $2 per unit sold.

Enter into a long-term contract with a competitor that will serve that area's customers. This competitor would pay Ironwood a royalty of $0.9 per unit based on an estimate of 30,000 units being sold.

Close the North Dakota factory and not expand the operations of the Minnesota factory.

Total home office costs of $96,000 will remain the same under each situation.

Required:

To assist the management of Ironwood Corporation, complete the following schedule computing Ironwood's estimated operating profit from each of the following options:

a. Expansion of the Minnesota factory.

b. Negotiation of the long-term contract on a royalty basis.

c. Shutdown of the North Dakota operations with no expansion at other locations.

Required A Required B Required C Expansion of the Minnesota factory. IRONWOOD CORPORATION Computation of Estimated Profit from Operations after Expansion of Minnesota Factory Minnesota factory: Sales Costs Factory Administration Variable costs Allocated home office costs Total Estimated operating profit Wisconsin factory-estimated operating profit Less: Home office costs previously allocated to North Dakota factory Estimated operating profit 0 Required A Required B Required C Negotiation of the long-term contract on a royalty basis. IRONWOOD CORPORATION Computation of Estimated Profit from Operations after Negotiation of Royalty Contract Estimated operating profit: Estimated royalties to be received Wisconsin factory Minnesota factory 0 Less: Home office costs previously allocated to North Dakota factory Estimated operating profit