Question

Furst, Inc. believed it could increase the company's profits by eliminating some product lines. Other companies have also tried to improve their financial performance by downsizing. In November 2017, General Electric announced it would begin a downsizing operation that would result in their exiting businesses using over $20 billion in assets in the next one to two years. In January 2018, Newell Brands, the company whose products include Tupperware, Sharpie pens, Elmer's Glue, and Rawlings sports products, announced it would be reducing its product offerings to the extent that it would close half of its facilities and reduce its revenues by 20 percent Consider the additional information presented as follows, which is hypothetical. All dollar amounts are in thousands, unit amounts are not. Assume that Furst decides to eliminate one shampoo product-line, Luster, for one of its segments that currently produces three products. As a result, the following are expected to occur (1) The number of units sold for the segment is expected to drop by only 135.000 because of the elimination of Luster, since most customers are expected to purchase a Anagen or Catagen product instead. The shift of sales from Luster to Anagen and Catagen is expected to be evenly split. In other words, the sales of Anagen and Catagen will each increase by 35,000 units (2) Rent is paid for the entire production facility, and the space used by Luster cannot be sublet. (3) Utilities costs are expected to be reduced by $35.000. (4) All of the supervisors for Luster were all terminated. No new supervisors will be hired for Anagen or Catagen. (5) Half of the equipment being used to produce Luster is also used to produce the other two products and its depreciation cost must be absorbed by them. The remaining equipment has a remaining a book value of $350.000 and can be sold for only $70,000 (6) Facility-level costs will continue to be allocated between the product lines based on the number of units produced

Answer 1

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							Working
			Anagen	Catagen	Total		Anagen	Catagen
Sales in units			445,000	445,000	890,000		410,000+35,000	410,000+35,000
Sales in dollars			$   890,000	$   890,000	$   1,780,000		445,000*$2	445,000*$2
Unit level cost:
Cost of Production			$      84,550	$     84,550	$       169,100		$77,900/410,000*445,000	$77,900/410,000*445,000
Sales Commission			$      11,570	$     11,570	$         23,140		$10,660/410,000*445,000	$10,660/410,000*445,000
Shipping and Handling			$      20,025	$     17,800	$         37,825		$18,450/410,000*445,000	$16,400/410,000*445,000
Miscellaneous			$        6,675	$        4,450	$         11,125		$6,150/410,000*445,000	$4,100/410,000*445,000
Total Unit Level Cost			$   122,820	$   118,370	$       241,190
Product Level Cost:
Supvervisor Salary			$        8,200	$        6,200	$         14,400
Facility Level Cost:
Rent			$   113,500	$   113,500	$       227,000		$91,000+($45,000/2)	$91,000+($45,000/2)
Utilities			$   110,625	$   110,625	$       221,250		($256,250-$35,000)/2	($256,250-$35,000)/2
Depreciation on Equipment			$   410,500	$   410,500	$       821,000		$365,000+$45,500	$365,000+$45,500
Allocated company wide exp			$      25,625	$     25,625	$         51,250		$51,250/2	$51,250/2
Total Facitlity Level Cost			$   660,250	$   660,250	$   1,320,500
Total Product Cost			$   791,270	$   784,820	$   1,576,090
Profits on product			$      98,730	$   105,180	$       203,910
Slae of Luster Equipment					$         70,000
Segment Earning					$       273,910