Problem 7-5A (Part Level Submission) (a) SHOW SOLUTION SHOW ANSWER LINK TO TEXT
ID: 2418339 • Letter: P
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Problem 7-5A (Part Level Submission)
(a)
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SHOW ANSWER
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(b1)
Problem 7-5A (Part Level Submission)
Brislin Company has four operating divisions. During the first quarter of 2017, the company reported aggregate income from operations of $213,000 and the following divisional results.Division I II III IV Sales $250,000 $200,000 $500,000 $450,000 Cost of goods sold 200,000 192,000 300,000 250,000 Selling and administrative expenses 75,000 60,000 60,000 50,000 Income (loss) from operations $ (25,000) $ (52,000) $140,000 $150,000
Analysis reveals the following percentages of variable costs in each division.
I II III IV Cost of goods sold 70 % 90 % 80 % 75 % Selling and administrative expenses 40 60 50 60
Discontinuance of any division would save 50% of the fixed costs and expenses for that division.
Top management is very concerned about the unprofitable divisions (I and II). Consensus is that one or both of the divisions should be discontinued.
Explanation / Answer
Compute the contribution margin for Divisions I and II.
Prepare an incremental analysis concerning the possible discontinuance of Division I.
Sales 2,50,000 2,00,000 Variable Expense Cost of goods sold 1,40,000 1,72,800 Selling and administrative expenses 30,000 36,000 Total Variable Cost 1,70,000 2,08,800 Contribution 80,000 -8,800