Giordano Company produces audio products within a single facility in Florida. The company has two divisions, MP3 and Car Audio. The MP3 division has been reporting losses for a number of years and management is considering its closure. The MP3 division makes one type of MP3 player using an automated production line that has a maximum capacity of 35,000 units per year. The following information is provided about the MP3 divisions performance during 2018:

MP3 Division Income Statement for year ended 12/31/2018
	$
Revenue (20,000 units x $45 per unit)	900,000
Unit level variable costs
Direct materials (20,000 units x $36 per unit)	(720,000)
Variable sales commissions (20,000 x $2 per unit)	(40,000)
Contribution margin	140,000
Fixed Expenses
Salary of the divisions production supervisor	(60,000)
Yearly advertising costs for the divisions MP3 player	(30,000)
Facility-level utilities (i)	(20,000)
Facility-level rent (ii)	(50,000)
Net loss for the year	(20,000)

1. The fixed utilities are the divisions share of the utilities costs for the entire company. The charge is an allocation based upon the space occupied by each division and is unavoidable if a division is closed.
2. The rent expense represents the divisions share of the rent on the companys Florida facility and is unavoidable if the MP3 division is closed. The yearly rent is fixed under a long-term lease agreement.

Required:

1. Should the MP3 Division be eliminated? Support your answer by providing a calculation that shows the net impact of the revenues lost and costs avoided as a result of the divisions elimination. Clearly state all assumptions.
2. A British supplier has offered to produce the 20,000 MP3 players that Giordano requires for $42 per unit. If this offer is accepted, production activities within the MP3 Division would end, although Giordano would continue to provide the following:

• Yearly advertising for the MP3 player
• Sales staff paid a variable sales commission of $2 per unit.

Should Giordano buy the MP3 players from Britain? Explain your answer by providing calculations that compare the costs avoided through the closure of the MP3 Division with the cost of buying the MP3 players from Britain.

c. Assume that the MP3 Division is kept open and the British outsourcing option is rejected. A German company has offered to buy an additional order of 10,000 MP3 players at a reduced price of $40 per unit. Assuming that the $2 per unit sales commission is not payable on this order, should Giordano accept this new order? Justify your answer by providing a calculation that shows the net impact of the additional revenue and incremental costs from supplying this additional order.