Response to the following problem:
Casagrande Company is currently operating at 80 percent capacity. Worried about the companys performance, Mike, the general manager, reviewed the companys operating performance.
Following are sales and related cost information about Casagrande, in millions of dollars:
Segment North South East West
Sales $30 $40 $20 $10
Less variable costs 12 8 21 8
Contribution margin $18 $32 $(1) $ 2
Less fixed costs 9 12 6 3
Operating profit (loss) $ 9 $20 $(7) $(1)
A. What is the current operating profit for the company as a whole?
B. Assume that all fixed costs are unavoidable. If Mike eliminated the unprofitable segments, what would be the new operating profit for the company as a whole?
C. What options does management have to maximize profits?
D. What qualitative factors do you think management should consider before making this decision? What impact could these qualitative factors have on the decision?