Biology Forums - Study Force

Betty Hopper, controller for Diamond Manufacturing Company, has prepared the following financial information for the most recent period showing profitability of its three divisions:

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Appliance

Electronics

Furniture

Sales	$102,000	$108,000	$120,000
Variable expenses	86,000	92,000	114,000
Contribution margin	16,000	16,000	6,000
Fixed expenses:	​	​	​
Factory insurance	1,000	1,400	2,200
Depreciation	2,000	2,600	3,600
Advertising	600	600	600
Utilities	800	1,000	1,200
Total fixed expenses	4,400	5,600	7,600
Operating income	$11,600	$10,400	($  1,600)

The factory insurance and advertising assigned to the furniture division are avoidable if the division is discontinued. Depreciation will remain unchanged if a division is dropped. Discontinuing furniture will reduce the utilities by $800.

Required:

a.	Prepare an analysis showing whether Furniture should be eliminated.

b.	If the Furniture division is eliminated, what will be effect on the overall profit for

Diamond?

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