Freeman Company has five divisions, and you are the division manager of one of these divisions. Assume that the Administrative Costs for Freeman Company represent corporate-sustaining fixed costs that are allocated to each division based on the divisions total assets. These costs represent long term commitments that cannot be changed within the next two years. Freeman Company decides to shut-down on of the other divisions (not your division) and dispose of the shut-down divisions assets.

A. (6 points) How would this decision affect your divisions profits? Make sure you explain your logic. Since of five divisions shut down, the fixed cost burden, which was allocated to five accounts easlier in the ratio of their assets will now get allocated between four active divisions. This results in your divisions fixed cost burden, which will go up in any scenario of a revised asset ratio for the active departments. If the fixed costs go up, the margins will come down with equal quantum if sales cant be improved or other costs cant be reduced. This fixed cost burden related to the 5th department will be borne by all active divisions in new a new ration of available assets.

B. (6 points) Describe how your answer to Part A relates to the interdependency problem of motivating performance.

C. (6 points) Describe how your answer to Part A relates to the death spiral phenomenon.