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Q2 PVO Manufacturing Bhd has three operating division. During the first quarter of 2011, the company reported total profit from operations of RM96,000 and the
Q2 PVO Manufacturing Bhd has three operating division. During the first quarter of 2011, the company reported total profit from operations of RM96,000 and the following results for the divisions: Division A (RM) B (RM) C (RM) Sales 570,000 830,000 980,000 Cost of goods sold 480,000 530,000 606,000 Selling and administrative expenses 140,000 252,000 276,000 Profit / (loss) from operations (50,000) 48,000 98,000 Analysis of the costs reveals the following percentages of variable costs in each division. Division A B C 90% 80% 85% Cost of goods sold Selling and administrative expenses 80% 60% 70% Discontinuance of any division would eliminate 60% of the fixed costs for that division. Top management is deeply concerned about the unprofitable division. The consensus is that to close down the unprofitable division. Required: a) Prepare a profit statement to show the effect of closing down unprofitable division. b) Based on your calculation in (a) above, advice the top management whether to close down unprofitable division
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