Aristide Corporation has three operating divisions. During the first quarter of 2016. The company reported total income from operations of $18,000 and the following results for each division:

Divisions

Division A

Division B

Division C

Sales

530,000

920,000

450,000

Cost of goods sold

450,000

576,000

390,000

Selling and admin expenses

100,000

246,000

120,000

Operating income/loss

(20,000)

98,000

(60,000)

Further analysis of the costs reveals the following percentages of variable costs in each division:

Cost of goods sold

90%

90%

95%

Selling and administrative expenses

60%

70%

80%

Closing down any division would result in savings of 60% of the fixed cost of that division. Top management is very concerned about the unprofitable divisions (A and

C) and is considering shutting them down.

(a)Calculate the contribution margin for the two unprofitable divisions

(b)On the basis of financial considerations alone, should the top management of Aristide shut down Division A? Division? Show your calculations.

(c)What other factors should top management of Aristide consider before making a decision?

(d)Division B currently manufacturers a subassembly for its main product. The manufacturing cost per unit is as follows:

Direct materials$1.00

Direct labour$10.00

Variable overhead$5.00 Directly attributable fixed overhead* $8.00

Total manufacturing costs$24.00

Bill Company contacted Aristide Corporation with an offer to sell them 5,000 of the subassemblies for $22.00 each. Aristide will eliminate $25,000 of fixed overhead if it accepts the proposal. Should the subassemblies be bought? Explain?

e) Under what conditions might a manufacturing firm sell a product for less than its long term price? Why?