Question

0 Requirements STUTTOTT 2. The division manager of Division B received the following operating income data for the past year: Click the icon to view the Division B operating income data.) The manager of the division is surprised that the T205 product line is not profitable. The division accountant estimates that dropping the T205 product line will decrease fixed cost of goods sold by $81,000 and decrease fixed selling and administrative expenses by $8,000. a. Prepare a differential analysis to show whether Division B should drop the T205 product line. b. What is your recommendation to the manager of Division B? 3. Division C also produces two product lines. Because the division can sell all of the product it can produce, Deeler is expanding the plant and needs to decide which product line to emphasize. To make this decision, the division accountant assembled the following data: (Click the icon to view the Division product data.) After expansion, the factory will have a production capacity of 4,300 machine hours per month. The plant can manufacture either 35 units of K707s or 54 units of G582s per machine hour. a. Identify the constraining factor for Division C. b. Prepare an analysis to show which product line to emphasize. 4. Division D is considering two possible expansion plans. Plan A would expand a current product line at a cost of $8,450,000. Expected annual net cash inflows are $1,600,000, with zero residual value at the end of 10 years. Under Plan B, Division D would begin producing a new product at a cost of $8,100,000. This plan is expected to generate net cash inflows of $1.120.000 per vear for 10 vears, the estimated useful Print Done

Answer 1

Answer 2 a)

Preparing a differential analysis to show whether Division B should be drop The T205 product line or not

Sr. No.	Particulars	Calculations	Amount ($)	Amount ($)
a	Expected decrease in Revenue from T205			($370,000)
b	Expected decrease in total Variable Costs	(39000 +67000 = 106000)	$106,000
c	Expected decrease in Fixed Costs	( 81000 + 8000 = 89000)	$89,000
d = b + c	Expected decrease in Total costs			$195,000
e = a - d	Expected decrease in operating income			($175,000)

Therefore, Incremental Loss due to discontinuation of Product line T205 is $175,000 (Loss)

Answer 2 b) Recommendation to the manager of Division B

It is advised that product line T205 should not be discontinued as it results in incremental loss of $175,000.

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