Scoff division of World-Wide Paint is currently losing money; therefore senior management is considering selling or closing Scoff. Scoff’s only product, an intermediate chemical called Binder, is used principally by the Latex division of the firm. If Scoff is sold, Latex division can purchase ample quantities of Binder in the market at sufficiently high quality levels to meet its requirements. World-Wide requires all of its divisions to supply product to other World-Wide divisions, before servicing the external market.

Scoff’s Statement of Operations for the latest quarter is:

1. World-Wide Paint has the policy of transferring all products internally at variable cost. In Scoff’s case, variable cost is 80 percent of the market price.
2. All of Scoff’s fixed costs are avoidable cash flows if Scoff is closed or sold.
3. Ten percent of the allocated corporate overhead is caused by the presence of Scoff and will be avoided if Scoff is closed or sold.

Should the Scoff division be sold?

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Revenues Inside Outside Operating expenses Variable costs Fixed costs Allocated corporate overhead Net profit (loss) before taxes Scoff Division Profit/Loss Last Quarter ( thousands) 200 75 275 260 15 40 315 (40)