BIRZEIT UNIVERSITY* MASTER OF BUSINESS ADMINISTRATION PROGRAM MANAGERIAL ACCOUNTING 631) SPRING SEMESTER 2019 CASE NO. 3 You have been asked to assist the management of Annahda Company in arriving at certain decisions . Annahda has it's home office in the center of the country and leases factory buildings in Area A. Area B. and Area C. all of which produce the same product . The management of Annahda provided you with a projection of operations for next year as follows :` Area^ Area #` Areat Total sales Ferrous* $ 1 . 201 ,0:1.1 5. 1 , 17/1 .1:105. #`10, 10.05. 4 , 101, 0^ Fixed costs Manufacturing* 5 56.01, 00^ $ 20^.``S 240.0101015. 1. 1010.0^ Administration 210,01^\\ |10.and 30,000 350.01^ Variable costs $15.040 360,000 1, 450,0 0 0 Allocated home office costs 225,00^| 175.040 100,001\\ Total Costs $ 1. 460, 0^` $ 94:01.1:105. 750. 10015 3, 101, 0^ Operating Profit $ 540,000 5#10.040 5 50, 00015 1 , 9100, 0 0^ The sales price per unit is $25. Due to the marginal results of operations of the factory in Area C . Annahda has decided to cease operations and sell that factory's machinery and equipment by the end of this year . Annahda expects that the proceeds from the sale of these assets would be greater than their book value and would cover all termination Costs . Annahda , however , would like to continue serving its customers in that area if it is economically feasible and is considering one of the following three alternatives :" 1 . Expand the operations of the Area B factory by using space presently idle . This move would result in the following changes in that factory's operations " Increase over Factory's Current Operations* Sales revenue* 50% Manufacturing fixed costs Administration fixed costs* 10%/ Under this proposal , variable costs would be $8 per unit sold . 2 . Enter into a long term contract with a competitor who will serve that area's customers . This competitor would pay Annahda a royalty of $4 per unit based on an estimate of 30 ,000 unity being* sold . 3. Close the Area [ factory and not expand the operations of the Area B factory . Total home office casts of $500,0100 will remain the same under each situation ." Required :` To assist the management of Annahda Company , prepare a schedule computing Annahda's estimated operating profit from* each of the following options ! ` Expansion of the Area B factory . 6 . Negotiation of long term contract on a royalty basis . `. Shutdown of Area C operations with no expansion at other locations