Becker Company has three separate operating branches: Division X, which manufactures utensils; Division Y, which makes plates; and Division Z, which makes cooking pots. Each division operates its own facility. The company’s administrative offices are located in a separate building. In recent years, Division Z has experienced a net loss and is expected to continue to do so. Income statements for 2014 follow.

a. Based on the preceding information, recommend whether to eliminate Division Z. Support your answer by preparing companywide income statements before and after eliminating Division Z.
b. During 2014, Division Z produced and sold 30,000 units of product. Would your recommendation in Requirement a change if sales and production increase to 45,000 units in 2015?
Support your answer by comparing differential revenue and avoidable cost for Division Z, assuming that 45,000 units are sold.
c. Suppose that Becker could sublease Division Z’s manufacturing facility for $740,000. Would you operate the division at a production and sales volume of 45,000 units, or would you close it? Support your answer with appropriatecomputations.

  • CreatedFebruary 07, 2014
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