value 12.00 points Manuel Inc. produces textiles in many different forms. After

Question

value 12.00 points Manuel Inc. produces textiles in many different forms. After recording lower than anticipated profits last year, Manuel has decided to shut down one of its divisions that is not performing well. The accounting manager has compiled the following data on the two divisions being considered for closing: Evaluate the short-term and long-term effects on profits of closing each division. (Loss amounts should be indicated with a minus sign.) Winter Outerwear High-End Suits Net revenues Variable costs $1,450,000 $ 5,450,000 2,360,000 860,000 Contribution margin 590,000 3,090,000 2,045,000 Controllable fixed costs Controllable margin Noncontrollable fixed costs 590,000 795,000 1,045,000 1,590,000 Contribution by SBU $ (205,000) $ (545,000) Winter Outerwear High-End Suits Short-term effects Long-term effects

Explanation / Answer

As noncontrollable fixed cost will be incurred whether the division is closed or operational hence in short term effect only controllable margin would be taken For long term we will take into consideration noncontrollable fixed cost as that can also be avoided, hence closing the division would increase the profit If closed Winter outwear High end suits Short Term effects ($590,000) -1045000 Long term Effects $205,000 $545,000 If any doubt please comment

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