Module 4, Case #3 Jan Shumard president and coneral manager of Danh Company was concemed about the future of one of the company's largest divisions. The division's most recent quarterty Income statement follows: $3,751.00 Les Cort of goods sold iHHHH [whit $1.039.100 Le Selling and admin 1.100.000 Opening Jan is giving serious consideration to shutting down the division because this is the ninth consecutive quarter that it has shown a loss. To help him in his decision, the following additional information has been gathered: The division produces one product at a selling price of $100 to outside parties. The division sels 50% of its output to another division within the company for $83 per unit Guil manufacturing cost plus 25%. The internal price is set by company policy. If the division is shut down, the user division will buy the part externally for $100 per unit. . The fixed overhead assigned per unit is $20. All of these costs would be avoidable the unit were shut down. . Of the fored selling and administrative expenses, 30% represent allocated expenses from corporate headquarters. Furthermore, $120,000 of the foedseling and administrative costs, while directly traced to the unit, belong to the Company's CEO'S son; Jan will have to re-assign him. Variable selling expenses are $5 per un sold for units sold. No variable administrative expenses are incurred. Required: A. Prepare an segment margin (or division margin) income statement That more accurately reflects the division's profit performance given the numbers reported originally. (Hint: do not change any of the given numbers, but reformat, splitting fixed costs into direct and common) B. Using the segment margin income statement in A now adjust for relevant information given in the facts and create a new segment margin income statement based on relevant numbers. (Hint be clear to show your work for the adjustments from A to B) C. Given what you did in what is the net effect of dropping the division? Module 4, Case #3 Jan Shumard president and coneral manager of Danh Company was concemed about the future of one of the company's largest divisions. The division's most recent quarterty Income statement follows: $3,751.00 Les Cort of goods sold iHHHH [whit $1.039.100 Le Selling and admin 1.100.000 Opening Jan is giving serious consideration to shutting down the division because this is the ninth consecutive quarter that it has shown a loss. To help him in his decision, the following additional information has been gathered: The division produces one product at a selling price of $100 to outside parties. The division sels 50% of its output to another division within the company for $83 per unit Guil manufacturing cost plus 25%. The internal price is set by company policy. If the division is shut down, the user division will buy the part externally for $100 per unit. . The fixed overhead assigned per unit is $20. All of these costs would be avoidable the unit were shut down. . Of the fored selling and administrative expenses, 30% represent allocated expenses from corporate headquarters. Furthermore, $120,000 of the foedseling and administrative costs, while directly traced to the unit, belong to the Company's CEO'S son; Jan will have to re-assign him. Variable selling expenses are $5 per un sold for units sold. No variable administrative expenses are incurred. Required: A. Prepare an segment margin (or division margin) income statement That more accurately reflects the division's profit performance given the numbers reported originally. (Hint: do not change any of the given numbers, but reformat, splitting fixed costs into direct and common) B. Using the segment margin income statement in A now adjust for relevant information given in the facts and create a new segment margin income statement based on relevant numbers. (Hint be clear to show your work for the adjustments from A to B) C. Given what you did in what is the net effect of dropping the division
