Herman Corporation operates two divisions
Not what you're looking for?
Herman Corporation operates two divisions, the A Division and the B Division. Both divisions manufacture and sell logs to paper manufacturers. The company is considering disposing of the B Division since it has been consistently unprofitable for a number of years. The income statements for the two divisions for the year ended December 31, 2006 are presented below
Division A Division B Total
Sales 400,000 300,000 700,000
Cost of goods 150,000 200,000 350,000
Gross profit 250,000 100,000 350,000
Sell and Admin 200,000 120,000 320,000
Net Income 50,000 (20,000) 30,000
In the B Division, 80% of cost of goods sold is variable costs and 20% of selling and administrative expenses are variable costs. The management of the company feels it can save $30,000 of fixed cost of goods sold and $30,000 of fixed selling expenses if it discontinues operation of the B Division.
Instructions
1. Determine whether the company should discontinue operating the B Division.
2. If the company had discontinued the division for 2006, determine what net income or would have been reported
Purchase this Solution
Solution Summary
Herman Corporations operates two divisions are examined.
Purchase this Solution
Free BrainMass Quizzes
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Organizational Behavior (OB)
The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.