Question

Foot B, Inc., is a small manufacturer of professional football equipment. The company has two divisions: the Pad Division and the Helmet Division. Data for the month of June are as follows:


Jacques, the company’s chief financial officer since June 1 of the current year, wants to close the unprofitable Pad Division. He believes that doing so will benefit Foot B 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, Jacques 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 Foot B.”

Instructions
a. Had the Pad Division been closed on June 1, what would the company’s operating income for the month have been?
b. After learning about Jacques’s business philosophy, the Pad Division’s director of marketing made the following statement: “Jacques may understand numbers, but he doesn’t understand the complementary relationship between pads and helmets, nor the seasonal nature of our business.” What did the director of marketing mean by this statement? How might such information influence Jacques’s assessment of the company’s Pad Division?
c. By how much would the Pad Division’s monthly sales have to increase for it to generate a positive responsibility margin of $2,000 in any given month? Show all yourcomputations.


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  • CreatedApril 17, 2014
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