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 2017 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 admin. expenses		(192,500	)			(51,240	)			(242,500	)
Division-level fixed selling and admin. 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

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

Based on the preceding information, recommend whether to eliminate Division B. (Negative amounts should be indicated by a minus sign.)

Contribution to profit (loss)
Should Division B be eliminated?	Yes

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

Prepare companywide income statements before and after eliminating Division B.

Companywide Income Statements	Keep Division B	Eliminate Division B
Sales
Less: Cost of goods sold
Unit-level manufacturing costs
Rent on manufacturing facility
Gross margin	$0	$0
Less: Operating expenses
Unit-level selling and admin. expenses
Division-level fixed selling and admin. expenses
Headquarters facility-level costs
Net income (loss)	$0	$0

b. During 2017, 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 2018?

During 2017, 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 2018? (Do not round intermediate calculations.)

Contribution to profit (loss)
Should Division B be eliminated?	No

c. Suppose that Solomon could sublease Division B's manufacturing facility for $425,000. Assuming that Division B currently has a production and sales volume of 36,000 units, determine whether Solomon should accept the opportunity to sublease the facility or continue production at Division B.

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. (Negative amounts should be indicated by a minus sign.)

Contribution to profit (loss)
Should Division B be eliminated?	Yes