XYZ Inc. has three divisions. Top management is concerned about the performance of Divisions I and...

Transcribed Image Text:

XYZ Inc. has three divisions. Top management is concerned about the performance of Divisions I and II and are considering closing them. They have asked you to prepare an analysis to help assist them in making this important decision. Sales Variable costs Contribution margin Fixed costs Net profit (loss) Division I Division II $100,000 70,000 30,000 50,000 ($20,000) $200,000 120,000 80,000 95,000 ($15,000) Division III $300,000 205,000 95,000 20,000 $75,000 XYZ Total $600,000 395,000 205,000 165,000 $40,000 You determine that if Division I is closed 65% of the fixed costs in that division would be avoided. If Division II is closed 10% of the fixed costs in that division would be avoided. Required a) What is the effect on total profits of XYZ if Division I is closed? (Show all your calculations) b) Should Division I be closed? c) What is the effect on total profits of XYZ if Division II is closed? (Show all your calculations) XYZ Inc. has three divisions. Top management is concerned about the performance of Divisions I and II and are considering closing them. They have asked you to prepare an analysis to help assist them in making this important decision. Sales Variable costs Contribution margin Fixed costs Net profit (loss) Division I Division II $100,000 70,000 30,000 50,000 ($20,000) $200,000 120,000 80,000 95,000 ($15,000) Division III $300,000 205,000 95,000 20,000 $75,000 XYZ Total $600,000 395,000 205,000 165,000 $40,000 You determine that if Division I is closed 65% of the fixed costs in that division would be avoided. If Division II is closed 10% of the fixed costs in that division would be avoided. Required a) What is the effect on total profits of XYZ if Division I is closed? (Show all your calculations) b) Should Division I be closed? c) What is the effect on total profits of XYZ if Division II is closed? (Show all your calculations)