King Company Has Two Divisions Whose Most Recent Financial Statements

question 73

Essay

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