Munoz Manufacturing Co. produces and sells specialized equipment used in the petroleum industry. The company is organized into three separate operating branches: Division A, which manufactures and sells heavy equipment; Division B, which manufactures and sells hand tools; and Division C, which makes and sells electric motors. Each division is housed in a separate manufacturing facility. Company headquarters is located in a separate building. In recent years, Division B has been operating at a net loss and is expected to continue to do so. Income statements for the three divisions for year 2 follow.

	Division A				Division B				Division C
Sales	$	4,100,000			$	1,224,000			$	4,600,000
Less: Cost of goods sold
Unit-level manufacturing costs		(2,400,000	)			(888,000	)			(2,680,000	)
Rent on manufacturing facility		(610,000	)			(265,000	)			(600,000	)
Gross margin		1,090,000				71,000				1,320,000
Less: Operating expenses
Unit-level selling and administrative expenses		(192,500	)			(51,240	)			(242,500	)
Division-level fixed selling and administrative expenses		(330,000	)			(75,000	)			(320,000	)
Headquarters facility-level costs		(170,000	)			(170,000	)			(170,000	)
Net income (loss)	$	397,500			$	(225,240	)		$	587,500

Required

1. a-1. Based on the preceding information, recommend whether to eliminate Division B.

2. a-2. Prepare companywide income statements before and after eliminating Division B.

3. b. During year 2, Division B produced and sold 24,000 units of hand tools. Calculate the contribution to profit if sales and production increase to 36,000 units in year 3.

4. c. Suppose that Munoz could sublease Division Bs manufacturing facility for $425,000, at a production and sales volume of 36,000 units. Calculate the contribution to profit of Division B.