Campbell Manufacturing Co. produces and sells specialized equipment used in the petroleum industry. The company is organized into three separate operating branches: Division A, which manufactures and sells heavy equipment; Division B, which manufactures and sells hand tools; and Division C, which makes and sells electric motors. Each division is housed in a separate manufacturing facility. Company headquarters is located in a separate building. In recent years, Division B has been operating at a net loss and is expected to continue to do so. Income statements for the three divisions for year 2 follow.
| Sales | $ | 3,600,000 | | | $ | 1,012,000 | | | $ | 4,200,000 | |
| Less: Cost of goods sold | | | | | | | | | | | |
| Unit-level manufacturing costs | | (2,200,000 | ) | | | (792,000 | ) | | | (2,680,000 | ) |
| Rent on manufacturing facility | | (610,000 | ) | | | (185,000 | ) | | | (500,000 | ) |
| Gross margin | | 790,000 | | | | 35,000 | | | | 1,020,000 | |
| Less: Operating expenses | | | | | | | | | | | |
| Unit-level selling and administrative expenses | | (189,500 | ) | | | (48,290 | ) | | | (239,500 | ) |
| Division-level fixed selling and administrative expenses | | (290,000 | ) | | | (69,000 | ) | | | (314,000 | ) |
| Headquarters facility-level costs | | (190,000 | ) | | | (190,000 | ) | | | (190,000 | ) |
| Net income (loss) | $ | 120,500 | | | $ | (272,290 | ) | | $ | 276,500 | |
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Required
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a-1. Based on the preceding information, recommend whether to eliminate Division B.
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a-2. Prepare companywide income statements before and after eliminating Division B.
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b. During year 2, Division B produced and sold 22,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 34,000 units in year 3.
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c. Suppose that Campbell could sublease Division Bs manufacturin
Campbell Manufacturing Co. produces and sells specialized equipment used in the petroleum industry. The company is organized into three separate operating branches: Division A, which manufactures and sells heavy equipment; Division B, which manufactures and sells hand tools; and Division C, which makes and sells electric motors. Each division is housed in a separate manufacturing facility. Company headquarters is located in a separate building. In recent years, Division B has been operating at a net loss and is expected to continue to do so. Income statements for the three divisions for year 2 follow. Division A $ 3,600,000 Division B $1,012,000 Division $ 4,200,000 (2,200,000) (610,000) 790,000 (792,000) (185,000) 35,000 (2,680,000) (500,000) 1,020,000 Sales Less: Cost of goods sold Unit-level manufacturing costs Rent on manufacturing facility Gross margin Less: Operating expenses Unit-level selling and administrative expenses Division-level fixed selling and administrative expenses Headquarters facility-level costs Net income (loss) (189,500) (290,000) (190,000) 120,500 (48,290) (69,000) (190,000) $ (272,290) (239,500) (314,000) (190,000) 276,500 $ $ Required a-1. Based on the preceding information, recommend whether to eliminate Division B. a-2. Prepare companywide income statements before and after eliminating Division B. b. During year 2. Division B produced and sold 22,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 34,000 units in year 3. c. Suppose that Campbell could sublease Division B's manufacturing facility for $465,000, at a production and sales volume of 34,000 units. Calculate the contribution to profit of Division B. a-1. Based on the preceding information, recommend whether to eliminate Division B. a-2. Prepare companywide income statements before and after eliminating Division B. b. During year 2. Division B produced and sold 22,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 34,000 units in year 3. c. Suppose that Campbell could sublease Division B's manufacturing facility for $465,000, at a production and sales volume of 34,000 units. Calculate the contribution to profit of Division B. Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B Required Prepare companywide income statements before and after eliminating Division B. Keep Companywide Income Statements Eliminate Division B Division B Sales Less: Cost of goods sold Unit-level manufacturing costs Rent on manufacturing facility Gross margin $ 0 $ 0 Less: Operating expenses Unit-level selling and admin. expenses Division-level fixed selling and admin. expenses Headquarters facility-level costs Net income (loss) $ 0 $ 0 Required a-1. Based on the preceding information, recommend whether to eliminate Division B. a-2. Prepare companywide income statements before and after eliminating Division B. b. During year 2. Division B produced and sold 22,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 34,000 units in year 3. c. Suppose that Campbell could sublease Division B's manufacturing facility for $465,000, at a production and sales volume of 34,000 units. Calculate the contribution to profit of Division B. Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B Required C During year 2, Division B produced and sold 22,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 34,000 units in year 3. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.) Contribution to profit (loss) Should Division B be eliminated? No Required a-1. Based on the preceding information, recommend whether to eliminate Division B. a-2. Prepare companywide income statements before and after eliminating Division B. b. During year 2. Division B produced and sold 22,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 34,000 units in year 3. c. Suppose that Campbell could sublease Division B's manufacturing facility for $465,000, at a production and sales volume of 34,000 units. Calculate the contribution to profit of Division B. Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B Required C Suppose that Campbell could sublease Division B's manufacturing facility for $465,000, at a production and sales volume of 34,000 units. Calculate the contribution to profit of Division B. (Negative amounts should be indicated by a minus sign.) Contribution to profit (loss) Should Division B be eliminated? Yes
