King Company Has Two Divisions Whose Most Recent Financial Statements

King Company has two divisions whose most recent financial statements are shown below: $\begin{array}{c}\begin{array}{|l|}\hline\\\hline\\\hline \text {Unit sales}\\\hline \text {Sales}\\\hline \text {Less: cost of goods sold:}\\\hline \text {Unit-level production costs}\\\hline \text {Depreciation, production equipment}\\\hline \text {Gross margin}\\\hline \text {Less: operating expenses:}\\\hline \text {Unit-level selling and admiristrative}\\\hline \text {Corporate-level facility costs (fixed)}\\\hline \text {Net income (loss)}\\\hline\end{array}\begin{array}{l|}\hline \text {Commercial}\\\hline \text {Division}\\\hline \text {5,000}\\\hline \text {\( \$ 400,000 \)}\\\hline \\ \hline \text {175,000 }\\\hline \text {75,000} \\ \hline 150,000\\\hline \\\hline \text {40,000 }\\ \hline \text {\quad 12,500} \\ \hline \quad 97,500 \\ \hline \end{array}\begin{array}{l|} \hline\text { Residential }\\ \hline\text { Division }\\ \hline1,000\\ \hline\$100,000\\ \hline\\ \hline60,000 \\ \hline25,000 \\\hline \$ 15,000\\ \hline\\ \hline10,000 \\\hline 7,500 \\\hline \$(2,500 \\\hline \end{array} \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?

Correct Answer:

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