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The operations of Bunga Raya Sdn Bhd (BRSB) are divided into the Fix Division and the Split Division. The extracted income statement for the last financial year is as follows: Items Fix Division (RM)   Split Division (RM)   Total (RM) Sales revenue 80,000   47,000   127,000 Variable expense 30,000   29,000   59,000 Fixed cost:           Allocated common costs 7,000   6,500   13,500 Line supervisor 12,000   11,000   23,000 Maintenance of equipment 2,000   1,500   3,500 Depreciation of equipment 7,500   7,000   14,500 Office rental 2,000   3,000   5,000 Profit (Loss) 19,500   (11,000)   8,500 This is the third year in a row that Split Division is making a loss. Therefore, the management is considering of discontinuing this division. If the division is closed, the equipment and office used for Split Division will not be utilised for other purpose. REQUIRED:   Evaluate whether it is worthwhile for BRSB to drop Split Division.   Discuss THREE (3) examples of qualitative factors that any organization should consider before dropping any of their division.

The operations of Bunga Raya Sdn Bhd (BRSB) are divided into the Fix Division and the Split Division. The extracted income statement for the last financial year is as follows: Items Fix Division (RM)   Split Division (RM)   Total (RM) Sales revenue 80,000   47,000   127,000 Variable expense 30,000   29,000   59,000 Fixed cost:           Allocated common costs 7,000   6,500   13,500 Line supervisor 12,000   11,000   23,000 Maintenance of equipment 2,000   1,500   3,500 Depreciation of equipment 7,500   7,000   14,500 Office rental 2,000   3,000   5,000 Profit (Loss) 19,500   (11,000)   8,500 This is the third year in a row that Split Division is making a loss. Therefore, the management is considering of discontinuing this division. If the division is closed, the equipment and office used for Split Division will not be utilised for other purpose. REQUIRED:   Evaluate whether it is worthwhile for BRSB to drop Split Division.   Discuss THREE (3) examples of qualitative factors that any organization should consider before dropping any of their division.

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter10: Evaluating Decentralized Operations
Section: Chapter Questions
Problem 5E: Service department charges In divisional income statements prepared for Demopolis Company, the...
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  1. The operations of Bunga Raya Sdn Bhd (BRSB) are divided into the Fix Division and the Split Division. The extracted income statement for the last financial year is as follows:

Items

Fix Division (RM)

 

Split Division (RM)

 

Total

(RM)

Sales revenue

80,000

 

47,000

 

127,000

Variable expense

30,000

 

29,000

 

59,000

Fixed cost:

 

 

 

 

 

Allocated common costs

7,000

 

6,500

 

13,500

Line supervisor

12,000

 

11,000

 

23,000

Maintenance of equipment

2,000

 

1,500

 

3,500

Depreciation of equipment

7,500

 

7,000

 

14,500

Office rental

2,000

 

3,000

 

5,000

Profit (Loss)

19,500

 

(11,000)

 

8,500

This is the third year in a row that Split Division is making a loss. Therefore, the management is considering of discontinuing this division. If the division is closed, the equipment and office used for Split Division will not be utilised for other purpose.

REQUIRED:

 

  • Evaluate whether it is worthwhile for BRSB to drop Split Division.

 

  • Discuss THREE (3) examples of qualitative factors that any organization should consider before dropping any of their division.

 

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