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Manuel Incorporated produces textiles in many different forms. After recording lower-than-anticipated profits last year, Manuel has decided to shut down one of its divisions
Manuel Incorporated produces textiles in many different forms. After recording lower-than-anticipated profits last year, Manuel has decided to shut down one of its divisions that is not performing well. The accounting manager has compiled the following data on the two divisions being considered for closing and has asked you to evaluate the short-term and long-term effects on profits of closing each division. Net revenues Variable costs Contribution margin Controllable fixed costs Controllable margin Noncontrollable fixed costs Contribution by profit center Winter Outerwear High-End Suits $ 1,200,000 660,000 $ 5,200,000 2,160,000 540,000 3,040,000 2,020,000 540,000 1,020,000 770,000 1,540,000 $ (230,000) $ (520,000) Which division should be closed if Manuel is most concerned with increasing long-run profits? Winter Outerwear O High-End Suits Closing either division would have the same impact on long-term profits.
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