Simon Forest Corporation operates two divisions, the Timber Division and the Consumer Division. The Timber Division manufactures and sells logs to paper manufacturers. The Consumer Division operates retail lumber mills which sell a variety of products in the do-it-yourself homeowner market. The company is considering disposing of the Consumer Division since ithas been consistently unprofitable for a number of years. The income statements for the two divisions for the year ended December 31, 2010 are presented below:

In the Consumer Division, 60% of the cost of goods sold is variable costs and 25% of selling and administrative expenses are variable costs. The management of the company feels it can save $60,000 of fixed cost of goods sold and $50,000 of fixed selling expenses if it discontinues operation of the Consumer Division.

Instructions
(a) Determine whether the company should discontinue operating the Consumer Division. Prepare a schedule which supports your decision.
(b) If the company had discontinued the division for 2010, determine what net income would havebeen.

Timber Division S1,500,000 S900,000 S600,000 S250,000 S350,000 Consumer Division $500,000 $350,000 S150,000 $180,000 S(30,000) Total Sales Cost of goods sold Gross proft Selling & admin expenses Net income $2,000,000 S1,250,000 S750,000 S430,000 320,000