You have been asked to assist the management of Ironwood Corporation in arriving

Question

You have been asked to assist the management of Ironwood Corporation in arriving at certain decisions. Ironwood has its home office in Michigan and management provided you a projection of operations for next year as follows: Total Wisconsin Minnesota North Dakota 445,000$289,000 $153,000 Sales revenue Fixed costs 47,000 6,000 74,000 21,000 674,000 $330,000 $196.000$148,000 $ 5,000 Factory Administration Variable costs Allocated home office costs 216,000 110,000 41,000 289,000 34,000 45,000 59,000 22,000 81,000 34,000 69,000 100,000 Operating profit $213,000 $115,000 $ 93,000 The sales price per unit is $5. Due to the marginal results of operations of the factory in North Dakota, Ironwood has decided to cease its operations and sell that factory's machinery termination costs. Ironwood, however, would like to continue serving most of its customers in that area if it is economically feasible and is considering o Expand the operations of the Minnesota factory by using space presently idle. This move would result in the following changes in that factory's operat Increase over Minnesota factory's current operations 51% Sales revenue Fixed costs Factory Administration 20 Under this proposal, variable costs would be $2 per unit sold Enter into a long-term contract with a competitor that will serve that area's customers. This competitor would pay Ironwood a royalty of $0.9 per unit ba Close the North Dakota factory and not expand the operations of the Minnesota factory. Total home office costs of $100,000 will remain the same und Required To assist the management of Ironwood Corporation, complete the following schedule computing Ironwood's estimated operating profit from each of the a. Expansion of the Minnesota factory IRONWOOD CORPORATION Computation of Estimated Profit from Operations after Expansion of Minnesota Factory Minnesota factory:

Explanation / Answer

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. a. Minnesota Factory Expansion Sales 289000+51% $436,390 Costs: Factory 59000+20% $70,800 Administration 22000+10% $24,200 Variable Cost (436390/5)*2 $174,556 Allocated home office cost $34,000 Total $303,556 Estimated Operating Profit $132,834 Wisconsin Estimate operating profit $115,000 Less: Home office cost allocated to North Dakota Factory $21,000 Estimated Operating Profit $226,834 b. Long Term Contract Estimated operating Profit: Wisconsin $115,000 Minnesota $93,000 Estimated Royalty 0.9*27000 $24,300 Less: Home office cost allocated to North Dakota Factory $21,000 Estimated Operating Profit $211,300 c. Shutdown of the North Dkota Estimated operating Profit: Wisconsin $115,000 Minnesota $93,000 Less: Home office cost allocated to North Dakota Factory $21,000 Estimated Operating Profit $187,000 Best if to expand the Minnesota operations

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