managerial accounting

Question 1 (15 marks) Hang Hang Limited is a listed company in Hong Kong. It makes and sells Abidas and Mikie. The company has two divisions in Hong Kong, i.e., the Kowloon division and the Lantau division Recently, the business of Hang Hang Limited has not been very profitable, especially the Kowloon division. The following is the revenue and cost information from the Kowloon division for 2020. Abidas Mikie Total Revenues ($500 x 2,000; $350 x 12,000) $1.000.000 $4.200.000 $5,200.000 Total variable manufacturing costs ($250 x 2,000; $200 x 12,000) 500,000 2,400,000 2,900,000 Selling expenses $40,000 (fixed) + ($50 per unit sold) 140,000 $20,000 (fixed) + ($50 per unit sold) 620,000 760,000 Depreciation of equipment 70,000 40,000 110,000 Other fixed costs of the division - direct 120,000 80.000 200,000 Fixed regional administration costs 80,000 336,000 416,000 Corporate office costs 420.000 420.000 840.000 Total costs $1,330.000 $3.896.000 $5.226.000 Operating income / (loss) $ (330.000) $ 304.000 $ (26.000) For the Kowloon division, at the beginning of 2020, the equipment has a book value of $110,000, a one-year useful life, and zero disposal value. The equipment will remain idle after one year. Fixed selling expenses of a product line can be avoided if the line is discontinued. Meanwhile, fixed regional administration costs of the division and corporate office costs will not change if sales of individual product lines are increased or decreased or if product lines are added or dropped. The management of the Kowloon division is also worrying about the increase of obsolete inventary of Abidas. It will be impossible to sell these units at the normal price through regular distribution channels. Required: (a) Advise on the basis of financial consideration alone if the Kowloon division should discontinue the Abidas product line based on the financial data of 2020, assuming the released facilities remain idle? Show your calculations. (6 marks) (b) Advise the management what would be the effect on the Kowloon division's operating income if it was to sell 2,000 more Abidas. Assume that to do so the division would have to acquire additional equipment costing $150,000 with a one-year useful life and zero disposal value Assume further that the fixed selling expense and other fixed costs would not change. Show your computations. (6 marks) (c) Advise the management the minimum selling price of the obsolete inventory of Abidas. Explain