Question

Congratulations! You are the CEO of Definitely Diversified, Inc., which has several completely independent divisions: Fragrant Flower Delivery, Tea-for-Two Tea Stores, Handy Housecleaning Inc, Tempting Truffles Candy Company, Water Pump Equipment Inc., and Practically Paramedic Training Centers. The most recent income statement is shown below. These revenues and costs are expected to continue in the future. Definitely Diversified Inc. has overhead of $480 M. This $480 in overhead is incurred regardless of the number of divisions, and is allocated evenly across the divisions.

	Fragrant Flower Delivery	Tea-for-Two Tea Stores	Handy Housecleaning, Inc.	Tempting Truffles Candy Company	Water Pump Equipment Inc.	Practically Paramedic Training Centers	TOTAL
Sales ($ M)	$225	$340	$660	$305	$945	$1,090	$3,565
less:
Wages and Salaries ($ M)	$50	$160	$500	$100	$555	$930	$2,295
Cost of Materials ($ M)	$85	$60	$130	$100	$600	$200	$1,175
Allocated overhead ($ M)	$80	$80	$80	$80	$80	$80	$480
Net contribution to profit ($ M)	$10	$40	($50)	$25	($290)	($120)	($385)

At your upcoming board of directors meeting, you plan to make a strategic proposal to improve corporate profitability. Which divisions would you recommend retaining? Which divisions would you recommend eliminating? Explain.

Answer 1

As a CEO of company i always thinking to improve and increase my corporate profitability because it's attracts lots of new investors.now we analysed the above data.

*I recommend the following division to Retain:-

(1)Fragrant flowers delivery

(2)Tea for two tea stores

(3)Tempting Truffles Candy Company.

Because All are this devision making profit. if we continue these divisions then it will profitable for the business as it's wages also low as compared to other three divisions

*I recommend to Eliminate following divisions:-

(1) Handy housecleaning

(2)Water Pump Equipment Inc.

(3) Practically Paramedic Training Centers.

All these three divisions are loss making divisions so we should eliminate these divisions because if we continue then it will risky for corporate profitability. Sales are more but side by side the wages and overheads also more so it's not profitable.