Keep or Drop a Division

Jan Shumard, president and general manager of Danbury Company, was concerned about the future of one of the company's largest divisions. The division's most recent quarterly income statement follows:

Sales		$3,751,500
Less:	Cost of goods sold	2,722,400
	Gross profit	$1,029,100
Less:	Selling and administrative expenses	1,100,000
	Operating (loss)	$ (70,900)

Jan is giving serious consideration to shutting down the division because this is the ninth consecutive quarter that it has shown a loss. To help him in his decision, the following additional information has been gathered:

The division produces one product at a selling price of $100 to outside parties. The division sells 50% of its output to another division within the company for $83 per unit (full manufacturing cost plus 25%). The internal price is set by company policy. If the division is shut down, the user division will buy the part externally for $100 per unit.

The fixed overhead assigned per unit is $20.

There is no alternative use for the facilities if shut down. The facilities and equipment will be sold and the proceeds invested to produce an annuity of $100,000 per year. Of the fixed selling and administrative expenses, 30% represent allocated expenses from corporate headquarters. Variable selling expenses are $5 per unit sold for units sold externally. These expenses are avoided for internal sales. No variable administrative expenses are incurred.

Required:

1. Prepare an income statement that more accurately reflects the division's profit performance. Round intermediate calculations to the nearest cent. Round final answers to the nearest dollar.