You have been asked to assist the management of Ironwood Corporation in arriving at certain decisions. Ironwood has its home office in Michigan and leases factory buildings in Wisconsin, Minnesota, and North Dakota, all of which produce the same product. Ironwood's management provided you with a projection of operations for next year, as follows. Sales revenue Fixed costs Factory Administration Total Wisconsin Minnesota North Dakota $872,000 $431,000 $167,000 $274,000 212,000 108,000 51,000 53,000 72,000 46,000 20,000 6,000 Variable costs 289,000 132,000 88,000 69,000 Allocated home office costs 101,000 Total $674,000 45,000 $331,000 36,000 20,000 $195,000 $148,000 Operating profit $198,000 $100,000 $ 79,000 $ 19,000 The sales price per unit is $5. Due to the marginal results of operations of the factory in North Dakota, Ironwood has decided to cease its operations and sell that factory's machinery and equipment by the end of this year. Ironwood expects that the proceeds from the sale of these assets would equal all termination costs. Ironwood, however, would like to continue serving most of its customers in that area if it is economically feasible and is considering one of the following three alternatives: Expand the operations of the Minnesota factory by using space presently idle. This move would result in the following changes in that factory's operations Increase over Minnesota factory's current operations Bales revenue Fixed costs Factory Administration 49% 19 11 Increase over Minnesota factory's current operations Sales revenue Fixed costs Factory Administration 49 19 11 36:04 Under this proposal, variable costs would be $2 per unit sold. ook rint rences Enter into a long-term contract with a competitor that will serve that area's customers. This competitor would pay Ironwood a royalty of $11 per unit based on an estimate of 27,000 units being sold. Close the North Dakota factory and not expand the operations of the Minnesota factory. Total home office costs of $101,000 will remain the same under each situation. Required: To assist the management of Ironwood Corporation, complete the following schedule computing Ironwood's estimated operating profit from each of the following options: a. Expansion of the Minnesota factory. b. Negotiation of the long-term contract on a royalty basis. c. Shutdown of the North Dakota operations with no expansion at other locations. Chec Required A Required B Required C Expansion of the Minnesota factory. IRONWOOD CORPORATION Computation of Estimated Profit from Operations after Expansion of Minnesota Factory Minnesota factory: Sales Costs Factory Administration Variable costs Allocated home office costs Total Estimated operating profit Wisconsin factory-estimated operating profit Less: Home office costs previously allocated to North Dakota factory Estimated operating profit $ 408,260 $ 60,690 22,200 36,000 118,890) 100,000 20,000