King Company Has Two Divisions Whose Most Recent Financial Statements

question 10

Essay

King Company has two divisions whose most recent financial statements are shown below:
$\begin{array}{lrr}&\text { Commercial } & \text { Residential } \\&\text { Division } & \text { Division }\\\text { Unit sales } & 5,000 & 1,000\\\text { Sales } & \$ 400,000 & \$ 100,000\\\text { Less: cost of goods sold: } &\\\text { Unit-level production costs } & 175,000& 60,000 \\\text { Depreciation, production equipment } & \underline{75,000 }& \underline{ 25,000} \\\text { Gross margin } & \$ 150,000 & \$ 15,000\\\text { Less: operating expenses: } & \\\text { Unit-level selling and administrative } &40,000 & 10,000 \\\text { Corporate-level facility costs (fixed) } & \underline{12,500 }& \underline{7,500}\\\text { Net income (loss) } & \underline{\$ 97,500 }& \underline{ \$(2,500)}\end{array}$ 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:

Statute of Limitations

Laws that set the maximum time within which legal proceedings can be initiated after an event occurred which gives rise to the prosecution.

Bilateral Contracts

Agreements involving two parties where each commits to performing a specific act in exchange for the other's performance.

Promised Action

An agreed-upon deed or activity that a party has committed to perform in the scope of a contract or agreement.

Set of Promises

A collection or aggregation of commitments or assurances made by one party to another within the context of a contract or agreement.