Question

Ben Blum recently graduated from Moon shadow University’s accounting program. He has been hired as an analyst by Primrose Tire Company and one of his first assigned tasks was to evaluate the North East division of Primrose. This division has been heavily focused on producing a special snow and mud tire. Sales of the special tire have been disappointing and management is now evaluating whether to eliminate the North East division. Ben performed the following analysis and is preparing to address the Board of Directors of Primrose with his recommendation that the North East division should be eliminated, resulting in an increase to total company profit of $49,000.


The North East division’s cost of goods sold includes $33,000 in fixed costs and operating expenses include $46,000 in fixed costs. None of the fixed costs will be eliminated if the North East division is discontinued.

Required:
Do you agree with Ben’s analysis? Use incremental analysis to support yourconclusion.


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  • CreatedFebruary 27, 2015
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