ACC-214 Lab #9

Lab #9 involves the analysis of a company's income statements for their three divisions to determine whether an underperforming division should be eliminated. Within this lab you are provided with instructions that include the assumptions to be used in working through the analysis of this decision, along with an Excel document that will be used to prepare your analysis and recommendations. There are three decisions to be made: whether the company should keep the division at the current time, whether the company should keep the division if sales are increased, and whether the company should keep the division with increased sales or sublease the facility. Pay close attention to which items are relevant to this decision, only focusing on those that will be different between the alternatives being considered.

B H 9 AI C D E F 1 Lab #9 for Chapter 23 Template Name: 2 3 Use this spreadsheet to prepare solutions for the questions on the instructions file (Word). 4 5 Jones-Pitt Company Income Statement by Branch: 6 Division A Division B Division C 7 Sales 2,400,000 1,500,000 1,700,000 8 Less: Cost of Goods Sold Unit-level Manufacturing Costs (1,250,000) (620,000) (890,000) 10 Rent on Manufacturing Facility (340,000) (320,000) (440,000) 11 12 Gross Margin 810,000 560,000 370,000 13 Less: Operating Expenses 14 Unit-Level Selling and Admin. Expenses (90,000) (75,000) (150,000) 15 Division-Level Fixed Selling and Admin. Expenses (160,000) (115,000) (240,000) 16 Administrative Facility-Level Costs (90,000) (90,000) (90,000) 17 18 Net Income (loss) 470,000 280,000 (110,000) 19 (Note: no formulas have been used to present the data.) 20 21 Prepare your answers to parts a, b and c on the spreadsheet below: Requirements - using the provided Excel file: a. Based on the information above, recommend whether Division should be eliminated. Support your answer by preparing company-wide income statements - one with Division C and one without Division C. b. During 2021, Division C produced and sold 30,000 units of product. Would your recommendation in part (a.) change if sales and production increase to 35,000 units? Support your answer by comparing differential revenue and avoidable cost for Division C, assuming that 35,000 units are sold. C. Suppose that the company could sublease Division C's manufacturing facility for $610,000. Would you operate the division at a production and sales volume of 35,000 units or would you sublease? Support your answer with appropriate computations using Excel. Note: you must show supporting schedules/calculations on the Excel worksheet. The Jones-Pitt Company has 3 separate branches (divisions): Each branch (division) operates in its own facility. The administrative offices are located in a separate building, and administrative-facility level costs are allocated among branches A, B and C. The branch income statements are presented for the year 2021; Branch C has experienced a Net Loss. Branch C has suffered losses in recent years, and the company expects to continue to operate at a loss. Income Statements by Branch: (Note: no formulas have been used to present the data.) Division Division Division A B 2,400,000 1,500,000 1,700,000 Sales Less: Cost of Goods Sold Unit-level Manufacturing Costs Rent on Manufacturing Facility Gross Margin Less: Operating Expenses Unit-Level Selling and Admin. Expenses Division-Level Fixed Selling and Admin. Expenses Administrative Facility-Level Costs (1,250,000) (620,000) (890,000) (340,000) (320,000) (440,000) 810,000 560,000 370,000 (90,000) (75,000) (150,000) (160,000) (115,000) (240,000) (90,000) (90,000) (90,000) Net Income (loss) 470,000 280,000 (110,000) B H 9 AI C D E F 1 Lab #9 for Chapter 23 Template Name: 2 3 Use this spreadsheet to prepare solutions for the questions on the instructions file (Word). 4 5 Jones-Pitt Company Income Statement by Branch: 6 Division A Division B Division C 7 Sales 2,400,000 1,500,000 1,700,000 8 Less: Cost of Goods Sold Unit-level Manufacturing Costs (1,250,000) (620,000) (890,000) 10 Rent on Manufacturing Facility (340,000) (320,000) (440,000) 11 12 Gross Margin 810,000 560,000 370,000 13 Less: Operating Expenses 14 Unit-Level Selling and Admin. Expenses (90,000) (75,000) (150,000) 15 Division-Level Fixed Selling and Admin. Expenses (160,000) (115,000) (240,000) 16 Administrative Facility-Level Costs (90,000) (90,000) (90,000) 17 18 Net Income (loss) 470,000 280,000 (110,000) 19 (Note: no formulas have been used to present the data.) 20 21 Prepare your answers to parts a, b and c on the spreadsheet below: Requirements - using the provided Excel file: a. Based on the information above, recommend whether Division should be eliminated. Support your answer by preparing company-wide income statements - one with Division C and one without Division C. b. During 2021, Division C produced and sold 30,000 units of product. Would your recommendation in part (a.) change if sales and production increase to 35,000 units? Support your answer by comparing differential revenue and avoidable cost for Division C, assuming that 35,000 units are sold. C. Suppose that the company could sublease Division C's manufacturing facility for $610,000. Would you operate the division at a production and sales volume of 35,000 units or would you sublease? Support your answer with appropriate computations using Excel. Note: you must show supporting schedules/calculations on the Excel worksheet. The Jones-Pitt Company has 3 separate branches (divisions): Each branch (division) operates in its own facility. The administrative offices are located in a separate building, and administrative-facility level costs are allocated among branches A, B and C. The branch income statements are presented for the year 2021; Branch C has experienced a Net Loss. Branch C has suffered losses in recent years, and the company expects to continue to operate at a loss. Income Statements by Branch: (Note: no formulas have been used to present the data.) Division Division Division A B 2,400,000 1,500,000 1,700,000 Sales Less: Cost of Goods Sold Unit-level Manufacturing Costs Rent on Manufacturing Facility Gross Margin Less: Operating Expenses Unit-Level Selling and Admin. Expenses Division-Level Fixed Selling and Admin. Expenses Administrative Facility-Level Costs (1,250,000) (620,000) (890,000) (340,000) (320,000) (440,000) 810,000 560,000 370,000 (90,000) (75,000) (150,000) (160,000) (115,000) (240,000) (90,000) (90,000) (90,000) Net Income (loss) 470,000 280,000 (110,000)