Caption Question No. 1 Herman Corporation operates two divisions, the A Division and the B Division. Both divisions manufacture and sell logs to paper manufacturers. The company is considering disposing of the B Division since it has been consistently unprofitable for a number oif years. The income statements for the two divisions for the year ended December 31, 2006 are presented below: A Division $400,000 B Division $300,000 Total $700,000 Sales Cost of goods sold Gross profit Selling & administrative expenses Net income 350.000 350,000 250,000 100,000 In the B Division, 80% of cost of goods sold is variable costs and 20% of selling and administrative expenses are variable costs. The management of the company feels it can save $30,000 of fixed cost of goods sold and $30,000 of fixed selling expenses if it discontinues operation of the B Division. Required 1. Determine whether the company should discontinue operating the B Divisiorn 2.If the company had discontinued the division for 2006, determine what net income or would have been reported