A company with various segments (referred to as "divisions") is considering whether to drop its Orange County division. For each the costs described below, indicate whether the cost is avoidable or unavoidable by choosing the related drop-down menu item. 1. Wages paid to the Orange County division employees who work directly for this division and will be discharged if the division is dropped. 2. General administrative expenses allocated to the Orange County division on the basis of sales dollars. 3. Depreciation expense on previously purchased machinery that is used in the Orange County division; the machinery will have no other use or resale value if the division is dropped. 4. Rent paid for the building that houses only the Orange County division. 5. The amount of rent paid to lease a private jet for use by the company's management that is allocated to the Orange County division.
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Vanik Corporation currently has two divisions which had the following operating results for last year: Cork Division Rubber Division Sales $600,000 $350,000 Variable costs $250,000 $220,000 Contribution margin $350,000 $130,000 Traceable fixed costs $160,000 $110,000 Segment margin $190,000 $20,000 Allocated common corporate fixed costs $80,000 $45,000 Net operating income (loss) $110,000 ($25,000) Because the Rubber Division sustained a loss, the president of Vanik is considering the elimination of this division. All of the divisionās traceable fixed costs could be avoided if the division was dropped. None of the allocated common corporate fixed costs could be avoided. If the Rubber Division was dropped at the beginning of last year, the financial advantage (disadvantage) to the company for the year would have been: Multiple Choice ($20,000) $20,000 $25,000 ($25,000)
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Professional ethics and reporting division performance. Hannah Gilpin is the controller of Blakemore Auto Glass, a division of Eastern Glass and Window. Blakemore replaces and installs windshields. Her division has been under pressure to improve its divisional operating income. Currently. divisions of Eastern Glass are allocated corporate overhead based on cost of goods sold. Jake Myers, the president of the division, has asked Gilpin to reclassify $\$ 50,000$ of installation labor, which is included in cost of goods sold, as administrative labor, which is not. Doing so will save the division $\$ 20,000$ in allocated corporate overhead. The labor costs in question involve installation labor provided by trainee employees. Myers argues, "the trainees are not as efficient as regular employees so this is unfairly inflating our cost of goods sold. This is really a cost of training (administrative labor) not part of cost of goods sold." Gilpin does not see a reason for reclassification of the costs, other than to avoid overhead allocation costs. 1. Describe Gilpin's ethical dilemma. 2. What should Gilpin do if Myers gives her a direct order to reclassify the costs?
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