- Data Table Division B of Deeler, Inc. Income Statement For the Year Ended December 31, 2018 Product Line T205 280,000 $ B179 Total 390,000 $ 670,000 32,000 250,000 282,000 46,000 59,000 Net Sales Revenue Cost of Goods Sold: Variable Fixed Total Cost of Goods Sold Gross Profit Selling and Administrative Expenses: Variable 78,000 309,000 105,000 387,000 (2,000) 285,000 283,000 62,000 50,000 112,000 81,000 21,000 143,000 71,000 102,000 Fixed Total Selling and Administrative Expenses Operating Income (Loss) 214,000 $ (114,000) $ 183,000 $ 69,000 Print Done Data Table Per Unit K707 G582 $ 40 ga Sales price Variable costs 82 $ 21 19 61 $ 21 Contribution margin Contribution margin ratio 74.4% 52.5% Print Done Duncan Deeler, majority stockholder and president of Deeler, Inc., is working with his top managers on future plans for the company. As the company's managerial accountant, you've been asked to analyze the following situations and make recommendations to the management team. Read the requirements ..... Full product cost Plus: Desired profit 1,619,000 297,000 $ 1,916,000 Target revenue Divided by: Number of units 460,000 $ 4.17 Cost-plus price per unit Do you think Division A will be able to sell its product at the cost-plus price? Why or why not? If the advertising campaign is effective, Division should be able to sell its product at this price because it is not significantly higher than the $4.00 charged by competitors. The division manager of Division B received the following operating income data for the past year: (Click the icon to view the Division B operating income data.) The manager of the division is surprised that the T205 product line is not profitable. The division accountant estimates that dropping the T205 product line will decrease fixed cost of goods sold by $81,000 and decrease fixed selling and administrative expenses by $14,000. 2a. Prepare a differential analysis to show whether Division B should drop the T205 product line. (Enter decreases to profits with a parentheses or minus sign.) in operating income Choose from any list or enter any number in the input fields and then click Check Answer. Requirements 2. The division manager of Division B received the following operating income data for the past year: (Click the icon to view the Division B operating income data.) The manager of the division is surprised that the T205 product line is not profitable. The division accountant estimates that dropping the T205 product line will decrease fixed cost of goods sold by $81,000 and decrease fixed selling and administrative expenses by $14,000. a. Prepare a differential analysis to show whether Division B should drop the T205 product line. b. What is your recommendation to the manager of Division B? 3. Division C also produces two product lines. Because the division can sell all of the product it can produce, Deeler is expanding the plant and needs to decide which product line to emphasize. To make this decision, the division accountant assembled the following data: (Click the icon to view the Division C product data.) After expansion, the factory will have a production capacity of 4,100 machine hours per month. The plant can manufacture either 26 units of K707s or 65 units of G582s per machine hour. a. Identify the constraining factor for Division C. b. Prepare an analysis to show which product line to emphasize. 4. Division D is considering two possible expansion plans. Plan A would expand a current product line at a cost of $8,425,000. Expected annual net cash inflows are $1,500,000, with zero residual value at the end of 10 years. Under Plan B, Division D would begin producing a new product at a cost of $8,240,000. This plan is expected to generate net cash inflows of $1,090,000 per year for 10 years, the estimated useful life of the product line. Estimated residual value for Plan B is $1,300,000. Division D uses straight-line depreciation and requires an annual return of 9%. a. Compute the payback, the ARR, the NPV, and the profitability index for both plans. b. Compute the estimated IRR of Plan A. c. Use Excel to verify the NPV calculations in Requirement 4(a) and the actual IRR for the two plans. LIND HALAL 4. Division D is considering two possible expansion plans. Plan A would expand a current product line at a cost of $8,425,000. Expected annual net cash inflows are $1,500,000, with zero residual value at the end of 10 years. Under Plan B, Division D would begin producing a new product at a cost of $8,240,000. This plan is expected to generate net cash inflows of $1,090,000 per year for 10 years, the estimated useful life of the product line. Estimated residual value for Plan B is $1,300,000. Division D uses straight-line depreciation and requires an annual return of 9%. a. Compute the payback, the ARR, the NPV, and the profitability index for both plans. b. Compute the estimated IRR of Plan A. C. Use Excel to verify the NPV calculations in Requirement 4(a) and the actual IRR for the two plans. How does the IRR of each plan compare with the company's required rate of return? d. Division D must rank the plans and make a recommendation to Deeler's top management team for the best plan. Which expansion plan should Division D choose? Why