MASTER OF BUSINESS ADMINISTRATION PROGRAM MANAGERIAL ACCOUNTING 631 SPRING SEMESTER 2019 CASE No. 3 You have been asked to assist the management of Annahda Company in arriving at certain decisions. Annahda has its home ofce in the center of the country and leases factory buildings in Area A, Area B, and Area C, all of which produce the same product. The management of Annahda provided you with a projection of operations for next year as follows: Area A Area B Area C Total Sales revenue 5 2,200,000 5 1,400,000 3 800.000 3 4,400,000 Fixed costs Manufacturing 3 560,000 5 280.000 $ 260.0003 1,100,000 Administration 210,000 1 10,000 30,000 350,000 Variable costs 665,000 425,000 360,000 \"150,000 Allocated home ofce costs 225,000 I75,000 100,000 500,000 Total Costs 5 1,660,000 S 990,000 5 750,000 5 3,400,000 Operating Prot 5 540,000 5 410,000 3 50,0005 1,000,000 The sales price per unit is $25. Due to the marginal results of operations of the factory in Area C, Annahda has decided to cease operations and sell that factory's machinery and equipment by the end of this year. Annahda expects that the proceeds from the sale of these assets would be greater than their book value and would cover all termination costs. Annahda, however, would like to continue serving its customers in that area if it is economically feasible and is considering one of the following three alternatives: 1. Expand the operations of the Area B factory by using space presently idle. This move would result in the following changes in that factory's operations: Increase over Factory's Current Operations Sales revenue 50% Manufacturing xed costs 20% Administration xed costs 10% Under this proposal, variable costs would be $8 per unit sold. 2. Enter into a long term contract with a competitor who will serve that area's customers. This competitor would pay Annahda a royalty of $4 per unit based on an estimate of 30,000 unity being sold. 3. Close the Area C factory and not expand the operations of the Area B factory. Total home office costs of $500,000 will remain the same under each situation. Muired: To assist the management of Annahda Company, prepare a schedule computing Annahda's estimated operating prot from each of the following options: a. Expansion of the Area B factory. b. Negotiation of long term contract on a royalty basis. c. Shutdown of Area C operations with no expansion at other locations