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Betty Hopper, controller for Diamond Manufacturing Company, has prepared the following financial ...

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Betty Hopper, controller for Diamond Manufacturing Company, has prepared the following financial ...

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

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?

Textbook

Managerial Accounting

Edition: 4^th

Author: Davis

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