P$8-4$A$.$ Dropping Unprofitable Division Based on the following analysis of last year's operations of Bing$-$

ham, Inc., a financial vice president of the company believes that the firm's total net income could be

increased by $$400,000$ if its engineering division were discontinued. $($Amounts are given in thousands

of dollars.$)$

Required

Provide answers for each of the following independent situations:

a$.$ Assuming that total fixed costs and expenses would not be affected by discontinuing the engi$-$

neering division, prepare an analysis showing why you agree or disagree with the vice president.

b$.$ Assume that discontinuance of the engineering division will enable the company to avoid $40\%$

of the fixed portion of cost of services and $25\%$ of the fixed operating expenses allocated to the

engineering division. Calculate the resulting effect on net income.

c$.$ Assume that in addition to the cost avoidance in requirement $($b$),$ the capacity released by discon$-$

tinuance of the engineering division can be used to provide $6,000$ new services that would have a

variable cost per service of $$36$ and would require additional fixed costs totaling $$72,000.$ At what

unit price must the new service be sold if Bingham is to increase its total net income by $$120,000?$