Solutions please

Required

1. On the basis of financial considerations alone, should the Southern Division discontinue the tables product line, assuming that the released facilities remain idle? Show your calculations.

2. What would be the effect on the Southern Divisions operating profit if it were to sell 4000 more tables? Assume that to do so the division would have to acquire additional equipment costing

$42 000 with a one-year useful life and zero terminal disposal value. Assume further that the fixed marketing and distribution costs would not change but that the number of shipments would double. Show your calculations.

3. Given the Southern Divisions expected operating loss of $110 000, should Grossman Ltd shut it down? Assume that shutting down the Southern Division will have no effect on corporate office costs but will lead to savings of all general administration costs of the division. Show your calculations.

4. Suppose that Grossman Ltd has the opportunity to open another division, the Northern Division, whose revenues and costs are expected to be identical to the Southern Divisions revenues and costs (including a cost of $100 000 to acquire equipment with a one-year useful life and zero terminal disposal value). Opening the new division will have no effect on corporate office costs. Should Grossman Ltd open the Northern Division? Show your calculations.

L What other factors should scoot Ltd consider when making this decision? 10.34 Dropping a product line selling more units The Southern Division of Grossman Ltd makes and sells tables and beds. The following estimated revenue and cost Information from the division's activity-based costing system Is available for 2018: 4000 Tables 5000 Beds Total Revenues ($125 4000, 5200 - 5000) $500 000 $1 000 000 $1500 000 Variable direct materials and direct manufacturing labour.coSIS (S75 4000: $105.5000) 300 000 525 000 825 000 Depreciation on equipment used exclusively by each product line 42 000 58 000 100 000 Marketing and distribution costs 540 000 (fixed) + (5750 per shipment 40 shipments) 560 000 (fixed) + (5750 per shipment 100 shipments) 70 000 135 000 205 000 Fixed general administration costs of the division allocated to product lines on the basis of revenue 110 000 220 000 330 000 Corporate office costs allocated to product lines on the basis of revenues 50 000 100 000 150 000 Total costs 572 000 1038.000 1610 000 Operating profit (lossi $72.000 $38000 $110 000. Additional information includes: a. on 1 January 2018, the equipment has a carrying amount of $100 000 and zero disposal value. Any equipment not used will remain idle Fixed marketing and distribution costs of a product line can be avoided if the line is discontinued Fixed general administration costs of the division and corporate office costs will not change if sales of individual product lines are increased or decreased or if product Ines are added or dropped. b. C. Required 1. On the basis of financial considerations alone, should the Southern Division discontinue the tables product line, assuming that the released facilities remain idle? Show your calculations. 2 What would be the effect on the Southern Division's operating profit if it were to sell 4000 more tables? Assume that to do so the division would have to acquire additional equipment costing $42000 with a one-year useful life and zero terminal disposal value. Assume further that the fixed marketing and distribution costs would not change but that the number of shipments would double. Show your calculations. Given the Southern Division's expected operating loss of $110 000, should Grossman Ltd shut it down? Assume that shutting down the Southern Division will have no effect on corporate office costs but will lead to savings of all general administration costs of the division. Show your calculations. 4. Suppose that Grossman Ltd has the opportunity to open another division, the Northern Division, whose revenues and costs are expected to be identical to the Southern Division's revenues and costs (including a cost of $100 000 to acquire equipment with a one-year useful life and zero terminal disposal value). Opening the new division will have no effect on corporate office costs. Should Grossman Ltd open the Northern Division? Show your calculations