King Company Has Two Divisions Whose Most Recent Financial Statements

question 1

Essay

King Company has two divisions whose most recent financial statements are shown below: $\begin{array}{c}\begin{array}{|l|}\hline\\\hline\\\hline \text {Unit sales}\\\hline \text {Sales}\\\hline \text {Less: cost of goods sold:}\\\hline \text {Unit-level production costs}\\\hline \text {Depreciation, production equipment}\\\hline \text {Gross margin}\\\hline \text {Less: operating expenses:}\\\hline \text {Unit-level selling and admiristrative}\\\hline \text {Corporate-level facility costs (fixed)}\\\hline \text {Net income (loss)}\\\hline\end{array}\begin{array}{l|}\hline \text {Commercial}\\\hline \text {Division}\\\hline \text {5,000}\\\hline \text {\( \$ 400,000 \)}\\\hline \\ \hline \text {175,000 }\\\hline \text {75,000} \\ \hline 150,000\\\hline \\\hline \text {40,000 }\\ \hline \text {\quad 12,500} \\ \hline \quad 97,500 \\ \hline \end{array}\begin{array}{l|} \hline\text { Residential }\\ \hline\text { Division }\\ \hline1,000\\ \hline\$100,000\\ \hline\\ \hline60,000 \\ \hline25,000 \\\hline \$ 15,000\\ \hline\\ \hline10,000 \\\hline 7,500 \\\hline \$(2,500 \\\hline \end{array} \end{array}$

Required:
1)Compute the impact on profit if the Residential Division is eliminated.
2)Do you recommend that King eliminate the Residential Division?

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Definitions:

Stock's Beta

An indicator of how volatile a stock is compared to the general market, where a beta value above 1 signifies that the stock experiences more fluctuation than the market overall.

Standard Deviation

In finance, standard deviation measures the amount of variance or dispersion of a set of financial returns, indicating the investment's volatility.

Expansionary Fiscal Policy

An increase in government purchases, decrease in net taxes, or some combination of the two aimed at increasing aggregate demand enough to reduce unemployment and return the economy to its potential output; fiscal policy used to close a recessionary gap

Contractionary Fiscal Policy

A decrease in government purchases, increase in net taxes, or some combination of the two aimed at reducing aggregate demand enough to return the economy to potential output without worsening inflation; fiscal policy used to close an expansionary gap.