FlyWiz, Inc., is a small manufacturer of professional fishing equipment. The company has two divisions: the Rod Division and the Reel Division. Data for the month of January are shown on the following page.

Nick Fulbright, the company’s chief financial officer since January 1 of the current year, wants to close the unprofitable Rod Division. He believes that doing so will benefit FlyWiz and benefit him, given that his end-of-year bonus is to be based on the company’s overall operating income. In a recent interview, Fulbright summarized his business philosophy as follows: “A company is only as strong as its least profitable segment. As long as I’m at the financial helm, only the strongest shall survive at FlyWiz.”

a. Had the Rod Division been closed on January 1, what would the company’s operating income for the month have been?
b. After learning about Fulbright’s business philosophy, the Rod Division’s director of marketing made the following statement: “Nick Fulbright may understand numbers, but he doesn’t understand the complementary relationship between rods and reels, nor the seasonal nature of our business.” What did the director of marketing mean by this statement? How might such information influence Fulbright’s assessment of the company’s Rod Division?
c. By how much would the Rod Division’s monthly sales have to increase for it to generate a positive responsibility margin of $4,000 in any given month? Show all of yourcomputations.

  • CreatedApril 17, 2014
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