Walton Lumber, Inc produces a number of wood products including home furnishings and business furniture Operating data for the most recent year is as follows Total Business Home Sales 400,000 240,000 160,000 Cost of Sales Fixed 205,000 125,000 80,000 Costs of Sales Variable 70,000 25,000 45,000 General and Admin Costs Salaries 60,000 36,000 24,000 Utilities 25,000 12,500 12,500 Rent 12,000 6,000 6,000 Advertising 32,000 20,000 12,000 Insurance 10,000 7,500 2,500 Net Income (14,000) 8,000 (22,000) Zeb Walton, the owner of the company feels that the Home Products line, which was once profitable, should be closed His grandson, Jim Bob thinks that Grandpa's crazy The following information is relevant to your analysis Fixed Costs of Sales totaling $79,000 are traceable to the Home Products line $1,000 is allocated Closing the Home Division will result in the elimination of all Home Division variable Costs of Sales Total General and administrative salaries will be reduced to $50,000 if the Home Products line is discontinued Utilities and rent are allocated 50 50 to the two product lines Discontinuing the Home Products division will not decrease either cost Advertising expense is specific to each product line Total insurance costs would drop to $6,000 if the Home Products Line were dropped Required Prepare an analysis of Walton Lumber's operations assuming that the home products line is discontinued Based on your analysis determine if Grandpa is Off His Rocker or if Jim Bob is truly a Financial Guru (Use the blank page after this problem for your answer )

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Walton Lumber, Inc. produces a number of wood products including home furnishings and business furniture. Operating data for the most recent year is as follows:

Walton Lumber, Inc. produces a number of wood products including home furnishings and business furniture. Operating data for the most recent year is as follows:

Total Business Home

Sales 400,000 240,000 160,000

Cost of Sales - Fixed 205,000 125,000 80,000

Costs of Sales - Variable 70,000 25,000 45,000

General and Admin. Costs:

Salaries 60,000 36,000 24,000

Utilities 25,000 12,500 12,500

Rent 12,000 6,000 6,000

Advertising 32,000 20,000 12,000

Insurance 10,000 7,500 2,500

Net Income (14,000) 8,000 (22,000)

Zeb Walton, the owner of the company feels that the Home Products line, which was once profitable, should be closed. His grandson, Jim-Bob thinks that Grandpa's crazy. The following information is relevant to your analysis:

Fixed Costs of Sales totaling $79,000 are traceable to the Home Products line. $1,000 is allocated.

Closing the Home Division will result in the elimination of all Home Division variable Costs of Sales

Total General and administrative salaries will be reduced to $50,000 if the Home Products line is discontinued.

Utilities and rent are allocated 50/50 to the two product lines. Discontinuing the Home Products division will not decrease either cost.

Advertising expense is specific to each product line.

Total insurance costs would drop to $6,000 if the Home Products Line were dropped.

Required: Prepare an analysis of Walton Lumber's operations assuming that the home products line is discontinued. Based on your analysis determine if Grandpa is "Off His Rocker" or if Jim-Bob is truly a "Financial Guru". (Use the blank page after this problem for your answer.)